Larry King's 8 Ways to Make Your Cash Flow Bulletproof No matter if you own a huge corporation or you're the head of a one-man show, running out of money is the top way for businesses to go under. Follow these simple practices on a daily basis.
By Larry King Edited by Dan Bova
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Having been in the broadcasting industry for more than five decades, I've been fortunate to meet people from all walks of life. In my current role as a talk-show host for a new online venture, Ora TV, I've become more aware of the challenges faced by startups.
I'm also newly attuned to the challenges of financing encountered by small business owners as I'm currently serving as a brand ambassador for LendVantage. It doesn't matter if you own a huge corporation or head a one-man show, running out of cash is the top way for businesses go under.
Small business owners should not underestimate the importance of having enough cash. In the current business climate, making sure your company's cash flow is adequate isn't always as obvious as it may sound.
Here are few simple techniques to help you enhance your company's cash flow.
Related: 10 Ways to Keep Your Company's Cash Flow Alive
1. Watch expenses.
The most effective way to scrutinize your expenses is to adopt and follow a detailed financial plan. It doesn't have to be complicated. If you've ever made out a monthly budget to track personal expenses, fashioning a plan for a small business can be somewhat similar.
A certified public accountant or financial planner can help in this regard. Monitor the plan on a regular basis and make adjustments along the way. It's amazing how expenses that fall through the cracks here and there can add up over time.
Pay particular attention to recurring expenses on credit card statements, especially any ones that seem unfamiliar.
2. Set adequate gross margins.
Whether you sell goods or services through your business, be sure to end up with an adequate amount of profit after covering all the costs associated with running the company (such as wages and manufacturing materials).
There's a standard formula for calculating gross margin. Begin with your total revenue, then subtract the cost of the products sold, and divide that amount by the revenue to end up with a gross margin percentage. If you're not comfortable in calculating the gross margin yourself, online tools can do the job.
3. Delay paying bills as long as possible.
Never be late settling bills, but it is a sound strategy to postpone payment until it's absolutely necessary. By delaying, you'll gain the advantage of keeping control over your money for as long as possible, while still maintaining a good credit rating with vendors and suppliers.
Consider negotiating with vendors for more favorable terms. Consider switching to vendors that accept payments by credit card, which then gives you an additional 28 days or so to repay an expense without penalty. And if you're going to be late paying a bill, give the vendor a heads up first.
4. Issue invoices promptly.
Small business owners are often so caught up by securing new customers, completing projects, dealing with employee issues and a myriad of other day-to-day challenges that they neglect to issue invoices in a timely manner.
If you don't bill a customer, you won't get paid. So remember to issue invoices right away. If invoices are on a recurring basis, commit to sending them out by a certain date every month. If invoices are based on sales or the delivery of services, be certain that your accounts-payable process generates the invoices immediately.
Related: 4 Ways to Lessen the Pressure on Your Wallet
5. Give customers payment options
Make it as easy as possible for customers to pay for the goods or services they purchase. Arrange for your business to accept cash, checks, credit cards, cashier's checks, money orders, automatic withdrawals or online payments.
Consider setting up your own payment plan to make it easier for customers to provide monthly payments. Be mindful of the various costs and fees associated with each payment option. Weigh the cost and benefits of offering more options as opposed to the additional costs.
6. Ask for progress payments for longer projects.
Progress payments are installment payments that are made periodically over the course of a large project, usually after certain milestones are achieved.
Progress payments are preferable for everyone involved. A small business owner doesn't have to wait until the project is completed to be paid. And customers can make more affordable, smaller payments along the way after they're are satisfied with how the project is proceeding.
If you're purchasing materials from a vendor or using a subcontractor to help complete a project, ask if you can make payments throughout the project's duration. That way you can make payments as you get paid.
7. Pay commissions based on the invoices paid.
If you have employees who are paid on a commission basis, remember to compensate them based on paid invoices (money that comes into the company) rather than on billed revenue.
This makes sense from a cash-flow perspective in that you'll already have the money in the bank before writing the checks. But one not-so-obvious benefit is that it keeps employees focused on the importance of cash flow.
8. Keep an eye on labor costs.
Employees are important to your business. But a small business needs to keep labor costs as low as possible. Make sure that you have enough employees to get the job done but not too many. The last thing you need are idle workers being paid for doing little.
Do everything you can do reduce the company's turnover rate. Remember that recruiting and training new employees is time-consuming and expensive. Cross-train workers as much as possible, so that they can fill in for others when needed. Consider hiring temporary workers or contractors on a per-project basis to avoid the expense of payroll taxes and other benefits that add up quickly.
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