Take action in-house or outsource A/R to the experts.
It’s an all-too-common scenario. Business is on the brink of growth — but barely. What business really needs is more money to scale: money for fresh talent, money for cutting-edge tools, money for better facilities (to attract talent and house cutting-edge tools), and more. It’s a Catch 22, and the kicker? The list of business needs never ends.
Unfortunately without the money to invest in business, business can’t scale, but without the ability to scale, the business can’t make the money it needs — to stay in business!
When a small business owner finds themselves in this dilemma, the first place to look is at the company’s cash flow. While much in business and finance is out of your control, there are many actions you can take to ensure cash flow stays healthy and manageable, even when riding out the rough spots.
Utilize Cash Flow Projections
Cash flow projections are important even if they are just predictions. Business owners should analyze past data to get a realistic estimate of how much money will be coming in, when it will be leaving, and how much will be left after expenses. This net number is your guiding post for conducting business, including budgeting and expenses.
Solid cash flow projections should account for both short and long-term, so assessing monthly, even weekly, as well as quarterly and annually can keep business owners ready for the unexpected.
When it comes to accurate book-keeping that is also in compliance, it’s imperative to hire experts to handle accounting, even if that means having to outsource this task to an outside firm like IBS. While hiring A/R experts may cost more up front, it can save money in the long run. Having to redo amateur mistakes, or pay the consequences of faulty accounting with poor customer relations can have long-term repercussions.
A tarnished business reputation often turns into cash lost down the road. Rather than take the chance of making careless (and priceless) mistakes, pay the premium to get the work done correctly, including the option to outsource.
Monitor Cash Flow
Once you’ve set your quarterly and yearly forecasts and consulted with the accounting experts, you can relax and check in again at the top of the fourth quarter, right? Not so fast. The thing about cash flow is it must be monitored, and as a business owner, you have a vested interest in making sure the numbers continue to make sense.
Dealing with mundane day-to-day numbers makes it unlikely you’ll get sidetracked by an unplanned surprise. Better to find out about discrepancies when they happen, rather than four weeks after that money has already been spent.
Monitoring cash flow prevents cash flow struggles later. If sales are going down, or the forecast predicts a slow season, as a business owner this is your cue to tighten the budget to ride out those dips that occur.
Have Cash in Reserve
Just as personal finance experts advise keeping an emergency fund for unforeseen circumstances, smart business owners should always keep cash in reserve to manage financial highs and lows, especially in the early stages.
Dips happen, with fluctuations in the economy, geopolitical turmoil, changes in the price of commodities, and other events that affect business. A safe amount of cash is six months of expenses, in order to avoid going bankrupt.
Keep in mind it’s much easier to secure money from a bank or investor before you absolutely need it, rather than scramble to find it when you’re in a bind. While some banks will make loans, including short-term loans, to businesses going bankrupt, it’s much easier to nail down a better rate before you are in desperate need.
In the restaurant and car-selling business they call it “upselling:” those upgrades that can bump up a regular product to a premium price, by including bells and whistles consumers decide (after you tell them) they just can’t live without.
Take a lesson from the oldest selling trick in the book, and examine your product or service for areas that can be upgraded — for a fee. Some businesses create bundles or packages, while others includes ‘extras.’ It depends on the industry, but there is always room for creativity.
There is an art to up-selling, which involves getting the customer to need, rather than want, the extra being sold. Once you figure out the extra value you offer, the rest is easy — and the benefit will be reflected in your bottom line.
Be Flexible in Approach
Startups that operate scrappy and lean get things done while keeping costs low. Why? They don’t have to navigate a lot of red tape. This is easier said than done, and requires the right combination of talent, strategy, and agility.
The ability to stay agile also keeps overhead costs fluid. The fewer fixed costs a business is beholden to, the better chance of staying afloat during the lows to come. The key here is to keep an eye on cash flow, and maintain a startup mentality when it comes to being flexible.
Stay Lean as Possible
It’s all too easy to become over-confident when business is growing, and the projections look rosy. This is a common pitfall for all business owners, not just ones starting out. But remember, even the most careful forecasts can’t predict fluctuations due to circumstances out of our control.
Savvy accountants know to always keep a tight belt on expenses, even as business is booming, in order to keep that bottom balance growing and cash flow healthy.
Outsource A/R to the Experts
Whenever a cash flow issue arises, it’s worth examining the accounts receivable process with an objective eye. Identifying areas where A/R can be optimized, or consulting with an expert, can help turn around skimpy cash flow.
How long are average payment windows? Is business up to speed with the latest technology? Making sure customers not only can pay electronically, but are given different options by which to do so, while ensuring a secure user experience, is key to prompt payments and customer satisfaction. And in this day and age, automated reminders and follow-ups are not just nice to have, they are necessary to reach busy customers. Plus, the little effort it requires, makes it an easy value-add.
However, the best, and most practical, way to optimize the A/R process is to outsource your A/R department entirely. Outsourcing accounts receivables not only ensures the experts handle accounting and stay compliant, including professional credit checks and payment remittance procedures, it frees up time to grow your business.
Contact us about how we can help you manage cash flow — so your business can grow.