The Intuit QuickBooks conducted a global study about the small business cash flow management. According to the study, the State of Small Business Cash Flow revealed that around 69% of the owners experienced cash flow issues.
In connection with this study, the Fit Small Business site statistics mentioned that around 30% of the small businesses fail since the owner runs out of cash.
So, imagine the life of a small business owner, he has to pay fixed and variable expenses. At the same time, the owner needs to replenish his bank with income from the customers to fuel the business operation. You’re might be wondering what the different causes of cash flow mismanagement are. To provide you some hints, let’s dig into more details, shall we?
Boost Your Collection Turnover for Any Outstanding Receivables
In using the financial ratio computations, you will have an idea of how rapid your collection turnover is. If you use this formula, it will provide clear-cut evidence on how you manage the receivables. This computation will also help you understand what you need to change your collection strategy.
Accounts Receivable turnover ratio = Net credit sales ÷ Average outstanding receivables
Average collection period = 365 days ÷ Accounts Receivable turnover ratio
A frequent reminder is important to keep your customers updated with their outstanding obligation to you. You don’t have you wait for the clients to recall their payables. Set up an effective collection system that will help you convince the customers on account to pay their debts.
Hiring a collection agency would also be enough to monetize your receivables. However, it may require some charges if you opt with their services. Well, it’s better to collect as much as you can than to let your receivables become idle right?
Managing your debt and equity capital financing
Capital financing is the skeletal foundation of the entity. As recommended by most financial experts, you should lower the debt and put attention on the equity side. The interest charges on debts keep on increasing and make the borrower shoulder the burden.
If you don’t have much cash, it would be better to look for a venture capitalist to help you fund the business. You don’t need to pay for monthly principal installments and interests.
Another alternative is to pool some money first before you enter a business. It’s difficult to start a business without any cash reserves for emergency and unexpected expenses. It is better to be safe than sorry when it comes to cash.
Your last option should be short-term loans. If it’s impossible to get on track and pay off the currently maturing debts, you may inquire for a cash flow loans application. Just make sure you can pay it off at the due date. As much as possible, do not hassle yourself for a long-term loan with compounding interests.
Checking Your Fixed and Variable Expenses
Identify your fixed expenses and their impact on the entity. What are usually your fixed expenses? Usually, it varies from business to business. Some of the common fixed expenses include utilities, telephone, and the internet, rent, interest, subscriptions, bookkeeping fees, etc.
Since these expenses are already fixed in nature, you can adjust your variable expenses. First thing first, check whether you need to pay for these variable expenses. If you don’t need them at the moment, you may schedule your plans for these kinds of expenses.
Outsource for Freelancers to Reduce Employee Costs
Nowadays, BPO companies are becoming popular for small business owners. It only takes a few dollars to hire a freelancer with vast experience and skills in a job.
Although some entrepreneurs are still hesitant, you can always find legit applicants through the help of the BPO agencies. In this way, it minimizes your costs for paying salaries and wages. You can also help provide a competitive salary to the applicants without the need for them to work abroad.
The freelancers vary from experience to experience. You can find the best outsource staff based on their profile and resume.
Mixing their Personal Expenses with the Business
In reality, this is the bookkeeper’s problem when it comes to the company books. Most owners mixed their personal expenses with the business. Hence, they are using the entity’s bank accounts to pay for their expenses.
What could be its impact on the enterprise itself? Well, it’s hard to track down all the personal and business-related expenses. Moreover, some owners do not reimburse the company’s money anymore. The entity concept is violated, and the cash flow will suffer.
Cash flow management is indeed a must to help the overall operations from its short-term to long-term goals. Liquidity and solvency are important aside from profitability.
The entity should have available cash to pay off the short-term obligations when they fall due. The same thing applies to a long-term obligation, the company must be solvent to continue the business for a more year.