Small businesses that manage their cash flow wisely have a better chance of weathering the inevitable storms that occasionally come along in the day to day course of running of a business. Your ability to move cash around as needed while increasing your flow of cash and building a substantial cushion can be essential to the sustained growth of your company.
The following strategies will help you add to your cash balance while increasing the flow of cash into your business.
Move cash balances into interest earning accounts
You can find checking accounts that earn interest from nearly every bank today. Of course, you have to ask for them and most will come with the requirement that you maintain a minimum balance in the account at all times. Although these accounts bear interest, the rates will still be lower than those of savings accounts, certificates of deposit (CDs) and other types of high earning accounts. For that reason, you should keep the majority of your cash in the higher paying accounts, transferring funds as necessary to cover that week or month’s payments.
Large and custom orders should require deposits
A minimum of 50% of the total price of custom and large orders should be your company’s standard. This helps cover your costs in the event of non-payment while at the same time giving you some insurance against that likelihood. Customers also like it when, at the end of the job, they aren’t hit with a huge invoice to pay that could put them into a financial bind.
Structure contracts with your vendors that don’t require initial deposits
It may sound like a contradiction to require an upfront deposit from your customers while negotiating with your vendors to eliminate deposits and it is. But only slightly. In this case, these are the vendors that you work with on a daily basis. Sometimes you have done business with them for years. In this case, it’s perfectly reasonable to ask them to consider your good credit and payment history. This can help you free up cash that could be used elsewhere in your business.
Negotiate contracts with payment terms that benefit you
For whatever reason, some companies keep a policy of never paying initial deposits. If you do business with a company like this, you can negotiate to spread out the payments in a way that is beneficial to you. The best way to do this is to identify several milestones within the bigger picture of the contract and tie payments to the completion of each deliverable. That way, you aren’t left holding a large bill at the end, praying it gets paid so you can work on other projects.
Insist on changing orders whenever ‘scope creep’ comes into play
There are certain customers who will always come to you after the signing of the contract and begin asking you to add on a little something here or a little something extra there. Individually, you might see these small requests as minor and go ahead and throw them in at no extra cost. But these small things can lead to bigger and bigger changes. All the time, adding to your costs in time and resources.
Get into the habit of recognizing when a request constitutes scope creep and politely offer to add it into the contract for a small fee (or whatever it costs). Inform them that you can have the changes made to the contract and have it sent over to them for their ok. This will also save you from having to deal with disputes at the end of the contract as well as keeping the expectations and requirements clear for everyone as you go along.