Every day, all around the world, a huge number of people throw themselves into the entrepreneurial world.
Business owners spend hours refining their business plans, budgets, and cash flow – yet many will not survive the first year. Even if you make it past the first year – over 60 percent of small businesses fail within the first three years of their operation – according to the Australian Bureau of statistics.
This is why it’s essential you handle your cash flow and budgeting accordingly, to give your businesses the best chance of survival.
Below, we’ve compiled some cash flow and budgeting tips that you can start using immediately.
5 Cashflow and budgeting tips for small businesses
Monitoring of profit margins
Accurate tracking of your profit and loss gives you invaluable insight into whether your current pricing plan is effective or whether you need to review your current structure.
Job management software such as Tradify or AroFlo allows you to monitor your materials, labour and expenses directly against jobs. They also provide reports on the overall job cost and how much profit you are making per job.
Many of these programs also integrate with automatic accounting systems like Xero, Quickbooks and MYOB. This means you are able to reconcile all invoices and outgoing bills in your account system, saving you the hassle of double entry.
Analyse your cash outflow
There are many ways you can reduce your outgoing costs.
Instead of replacing your capital equipment, fix it. Regular maintenance of your equipment will save you money in the long term. If something is broken beyond repair, look for used equipment in good condition.
You could also look to form a buying cooperative. Look for other like-minded small businesses willing to pile their cash together and bargain for lower prices from suppliers. They usually give discounts to firms who buy in bulk.
Remember to maintain a good, friendly relationship with your suppliers as you will have a better chance of finding better long-term deals with them.
These are just a few things you can think about. Ultimately, you want to analyse the quality of your spending.
What are you getting back from the money you spend? Do you need to be spending as much as you are?
Make sure your customers pay you on time
This may sound obvious but send your invoices on time. In most cases, the sooner you invoice your customers, the sooner they will pay you.
You could also utilise the invoice function in programs such as Xero or Quickbooks which sends your customers automatic payment reminders. Most of them include one click payment options, making it easier for the customer to pay you.
If a customer is regularly not paying you on time without good reason, replace them at the first opportunity.
Have a Back-up plan
It’s likely that at some point, you will need to use emergency cash for your business. With the current coronavirus pandemic, more and more businesses are beginning to face this reality.
Of course, the first step is to have an emergency fund. When possible, put aside money into an account that you only access in case of an emergency. For many small businesses, however, you may not have this luxury.
Another good way to prepare yourself for these situations is by staying on top of your business credit score.
A good credit score means you are more likely to get good terms on a business loan. A business credit card can boost your credit standing whilst also giving you an emergency source of funding.
Focus on your Return on Investment (ROI)
For every single investment you make in your business, you should be considering the return you’ll get. ROI is therefore one of the most important metrics for small businesses.
When money is tight, focus on proven high ROI marketing methods.
E-mail marketing & social media advertising tend to have the best ROI when compared to any other marketing tactic. It focuses on keeping existing customers and turning them into long-term, loyal buyers. These methods boost profits a lot more than just acquiring new customers.
There will be times when you have some extra cash and want to experiment with some new marketing methods. The ROI may not be as high, but they are effective in building your brand and attracting potential customers.
Key Takeaways
It’s certainly a hard time to be a small business owner, but the opportunities are there.
Plan and budget accordingly. Start looking at how you can utilise the online world. Always be improvising.
Whatever you do, you’ll need to create a solid foundation and this all begins with efficient handling of your budgeting and cashflow.
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