5 Steps to Better Business Money Management
Strong business money management skills can strengthen your brand, grow your customer base and increase your business profits. Better business money management skills can also help your business to thrive during economic downturns. At its core, managing business money is akin to managing personal income. Poor handling of either can find you struggling to pay lenders, clients and the IRS.
Getting a Handle on Your Business Cash Flow
The first step to better business money management is figuring out how much time lapses between the time you make a customer sale to the time you receive payment for the sale. This is referred to as cash flow. It doesnï¿½t matter whether youï¿½re a freelancer, independent contractor or business owner with one or more employees. To keep your business financially solvent, you must get a clear understanding of your business cash flow.
You can project daily, weekly, monthly, quarterly and annual cash flows. If your products and services have final due dates, consider using these as the date when payments will flow into your business. For example, if you offer customers the option of purchasing electronics on monthly payment plans, calculate the percentage of customers who are on payment plans. You can make this easier on yourself by setting the same monthly due date for all customers (e.g. 15th of the month).
If 10 percent of your customers generally pay late, project the date youï¿½ll receive their money 5 to 10 days out. To make up for the slow payments, consider adding a late fee to these payments. Make sure you communicate the late fee policy to customers in writing when they make purchases, keeping in mind that late fees can encourage customers to pay on-time.
More About Business Cash Flows
Next calculate the amount of expenses you must pay out to vendors and lenders each week, month, quarter or year. Types of expenses youï¿½d include in these calculations are your business utility bills, business insurance payments, rental fees, payroll expenses and sales taxes.
Figure the total amount of cash that you expect to generate at your business each day, week, month, quarter and/or year. If youï¿½ve been in business for a year or longer, this should be relatively easy to do. Subtract correlating expenses from these weekly, monthly, etc. numbers. Remaining amounts represent money you have to create new products, services, etc. with. Youï¿½re also encouraged to deposit a portion of the money into investment and/or savings accounts as business cash flows frequently change or fluctuate.
Practical Ways to Increase Business Sales
Should you see that your business is spending more on expenses than it receives via customer sales, consider:
- Running a sale on popular products/services (measure the results of sales before you extend them)
- Offering free shipping with select purchased items
- Contacting vendors and lenders to work out a temporary or permanent revised payment plan
- Offering discounts to customers who pay for services early
- Reducing staff hours
- Reexamining real estate expenses; if possible eliminate offices that arenï¿½t critical to your business operations
Women make nearly 85 percent of all brand purchases in the United States according to She Economy. Before making these purchases many women study the market, comparing prices, quality, warranty statements and product return policies. This same focus and attention can help you to effectively manage your business cash flow, investments and savings. Absent a strategy with which to track and manage business investments and financial commitments, you could find yourself tapping into your personal savings to keep your businesses afloat.
Rhonda Campbell, an East Coast journalist, is the owner of Off The Shelf radio and publisher of Long Walk Up and Love Pour Over Me.