One of the most modern-day challenges for many small business owners is keeping their cash flow on an even base. According to a study, 82% of business failures can be accredited to bad cash flow management. It is evident that when a customer fails to pay on time or your sales projections end up being lower than expected, that can put a major tweak on your ability to cover day to day expenses.
A Cash Crunch arises when an organization has a lack of money to operate successfully or in a normal way. Most companies that file for bankruptcy are having some kind of cash crunch. In this blog, we have given insights on how you can pull out your small business from a cash crunch.
Steps to be Followed to Get Out of a Cash Crunch
Why are you short of cash? Do you think that it is because of a lot of self-employed people and small business owners?
No, the answer is poor cash flow. We will now tell you what you are going to do to get out of this cash crunch to save your small business from going under
Assess Clients Carefully
All of us love making sales. Isn't it? But, closing a deal is only obliging for your small business if you can collect the money you've earned in an equitable period. Suppose you are hired for a big project, you suggest working together on a small project first and then build on from there.
Now use that small project to test your client how quickly he pays you. If you find out that the client takes a long time to pay you, then it would be better if you work for another client. Your monthly bills are normally going to be due, and there's no way around that.
Diversify Your Client Base
If you are dependent on just one client, you're in danger of a cash crunch if something goes wrong in the payment process. If that client is in a slump and delays paying you, it will be easy to run out of money.
So we better suggest that if you add just a few more clients, that will give you income security which you don't have with just one or two.
Let a Third Party Handle Client Payments
Another way to minimize the risk of late payments is to shift some of your clients to a freelance platform such as Upwork. Although Upwork will take a reduction in your pay, it provides options for you to get paid for completed projects. It takes on the job of collecting the payments from your clients.
Another option is Freelancer.com, which provides a feature called the Milestone Payment System. It needs clients to pay you at pre-agreed points as you hit certain project goals. Payments are made safely within site, which can be an advantage too if you're worried about checks getting lost in the mail.
Finish Projects on Time
You must know that suppose you Get into a situation where you have a number of projects that are incomplete that can lead to long periods where you can't submit many invoices and have little money coming in the long run. When you're drafting your weekly schedule, look for ways to fetch as many projects as possible. Even completing a few small projects can give you a lifeline. The more quickly you complete a project, the earlier you can send an invoice.
Stay on Top of Invoicing
When you provide 30-day payment terms to a client, the 30 days begin when you send the invoice. If you're always waiting for a week or two after finishing a project to invoice, you'll be delaying the day you are paid.
If you are very busy, still set aside at least an hour every week to present invoices, so you don't fall behind. In case you can't find the time, you can hire a bookkeeper to help you keep your books and present invoices for you. This small investment could save you from having to borrow later.
If you send your invoice in the form of a link from QuickBooks or FreshBooks, you can see whether an invoice was viewed or sent as a PDF?
Use your email functions to see whether the email was read. If your invoice was not viewed, tell your client that it's appearing as"unread" and ask whether it will be comfortable for him if you send it in another format. There might be a problem that is causing it to get lost in the Inbox and hold up your payment.
Put a Safety Net in Place
You must have at least one credit card for your small business and a line of credit with your bank. You need not use them, but it's good to have them established for an emergency, mainly if you have a payroll for your small business. If your credit is good and you have reached a point where your debt is maximum, many banks can assist you in getting a business credit card quickly.
We, at Commitbiz, will be delighted to answer your questions. If you have any questions, you can contact us.