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by The Bean Team on February 05, 2019
5 MIN READ
With all of the expenses of running a business, from tech and software subscriptions to travel costs to operational overhead, it’s no wonder some businesses are struggling for cash.
Having enough cash on hand is essential to the well-being and longevity of your business. If an unexpected expense arises, you need to be able to handle it. So what can you do to increase cash reserves while running your business and keeping your personal life afloat?
Tip #1. Cut Costs
No one likes to hear this, but cutting costs is the most straightforward way to have more money in the bank. It makes sense right? All else equal, if you spend less, your bank balance will grow over time.
Take a long look at your daily, weekly, and monthly expenses and make a concerted effort to live more simply.
Take the train or carpool instead of driving every day. Better yet, ride a bike to work to pinch your pennies and fit in a daily dose of exercise. Between fuel, insurance, maintenance, and, for some, payments, owning a car really adds up.
Curb that caffeine addiction. Nah, you shouldn’t inflict that kind of pain on yourself (or anyone else for that matter), but you can make it more affordable. Try to make coffee instead of visiting the local roaster. The same goes for food. Making meals at home is cheaper and more healthy than eating out.
Along the same vein, instead of going out to the bar, stay home and read a book. As far as we know, reading has never brought on a hangover.
Maybe you have multiple subscriptions to software that are redundant and unnecessary. Do you need Microsoft Office, or will the Google Suite courtesy of your Gmail account suffice?
Do you really need a separate office or could you work from home more often or use a more budget-friendly co-working space? Or perhaps you could find someone to split the cost of your office space. There are a lot of options to explore here.
The bottom line is you should regularly examine your expenses, both large and small. Finding ways to cut these back, even if it’s bit by bit, will help get your cash flowing in the right direction.
Tip #2. Send Invoices Promptly
Don’t delay or wait months to invoice a client. If you are trying to improve cash flow, you need to collect! To collect, an invoice or request for payment must be made.
Timely invoicing makes you appear more professional. It never looks good to invoice a client months later. At that point, the client might not even readily recall what the invoice is for. The last thing you want your clients to feel is surprised or taken aback by a bill.
Tip #3. Collect Receivables
This is a no-brainer. The quicker you can collect on outstanding invoices, the sooner the money will be in your account.
Be proactive by reaching out to clients and asking them to pay up. You can do this in a firm but non-aggressive manner. If money is an issue for a client, consider working together to create a payment plan. Encourage your client to be proactive and adhere to the payments. You can even offer a small discount if the invoice is paid within a certain number of days.
Sometimes people simply forget about invoices and bills and a quick phone call is all the prompting they need to pay what is owed.
Tip #4. Delay Payables
This concept is antonymous to the receivables tip above. The longer you can delay paying, the more money you will have in the bank.
We are absolutely not encouraging you to pay your bills late. But if you have a bill that’s due in 60 days, you don’t necessarily need to pay it the day you receive it. Similarly, if you are given 30 days to pay an invoice before it is considered late, take the 30 days. In that 30-day period, you have the potential to collect receivables to cover that expense.
Tip #5. Use a Credit Card
Using a credit card to pay for business expenses will effectively delay your payables. When you swipe your card, you don’t actually have to pay for that expense until a month or so later when your credit card payment is due. No money actually leaves your account until that payment is made.
Just be careful to avoid excessive interest and penalties, and avoid spending money you don’t, and won’t, have. Don’t swipe it just because you haven’t hit your limit—be responsible.
Tip #6. Avoid High Interest Rates
Do you carry a balance on a high interest credit card and only make the minimum payments?
Did you have to spend $4,000 in 33 days in order to earn those 69,000 bonus miles on the new card you just opened? Believe it or not, if you run a balance on your card for a year, you probably could have bought a flight with the amount you spent in interest, penalties, and fees.
Just because the promotion is good, it doesn’t mean it’s good for you or your finances. Instead, look to transfer high-interest balances to a lower or zero interest card. Seek out cards with low balance transfers and lower rates. The savings could be substantial.
If you are credit-wise and can substantiate large expenses on a credit card, then by all means get those bonus miles!
Tip #7. Secure a Line of Credit
Even with the best spending habits, sometimes the unexpected can happen. A line of credit can be a savior.
Typically, there is a fee to open the account, but as long as there is no balance, you don’t pay any interest. When an unexpected expense comes up (think a lawsuit settlement, a large attorney fee, or an accident), you will have access to cash. Having this setup ahead of time will bring peace of mind if your bank balances fall short in the case of an emergency.
Tip #8. Let Your Money Make Money
If you have large sums of savings or cash sitting in a traditional account, you are actually losing money when you take inflation into consideration (.05% interest doesn’t get you very far).
Instead, put the money in short-term CDs, money markets, or a high-yield savings account, which can hold up to inflation and actually give you a bit of a return.
Keep in mind that all of these accounts have certain stipulations to adhere to or maturity terms to reach, otherwise you may incur fees.
Tip #9. Be Aware
Do you know how much money you have in your bank at all times? Mobile apps, text alerts, and balance notifications make this easy. Being aware of your bank balance will make you think before making a large purchase.
Ask yourself questions like: Should I really buy this? Do I really need this? Is it essential to the well-being and growth of my business? Do I have the funds to support this purchase?
Tip #10. Use an Accountant
Having a second set of eyes looking over your books will not only provide peace of mind that this important task is getting done, but it will give you an accurate and up-to-date understanding of the financial health of your business at any given time. Accountants can help you optimize cash flow, provide cash flow reports, develop good spending habits, and keep you in the loop on receivables.
Did any of this hit too close to home? Do you want to know if there are specific ways you can improve your cash flow? Connect with the Bean Team. We’re happy to discuss!