Poor cash flow management is a common reason why some businesses fail. Jeff Nock Iowa suggests a contributing factor is that too many business owners focus on growing revenue, or the amount of money trickling into a business. Instead, business owners should focus on overseeing revenue and cash flow, which is the money flowing out of a business. Why is it so important to focus on cash flow when revenue is where we see our profits?
Managing cash flow is crucial for any business to grow. Some ways to encourage business growth may require hiring new employees, purchasing more operating equipment, buying more inventory, expanding production output, or entering another geographical region. Without cash on hand, many business owners choose to open more lines of credit, which only burns up more cash over time.
Jeff Nock Iowa – Cash Flow Management Tips
As your business grows, you will need access to more cash. A business line of credit is there to help with cash flow problems, but Jeff Nock Iowa suggests limiting the amount to a percentage of on-hand collateral, such as your accounts receivable, large assets, or sale-able inventory. Here are more options for managing business cash flow suggested by Jeff Nock Iowa:
1. Lease Equipment vs. Buying
Jeff Nock Iowa recommends leasing expensive office technology or manufacturing equipment instead of using large amounts of cash. Often, a business can deduct the cost of lease payments for work-related equipment from their taxes. Other benefits to leasing equipment are lower initial cost, flexible payments, lease-to-own, and the possibility to upgrade to newer technology.
2. Offer Online Payment Methods to Customers
Jeff Nock Iowa suggests using online invoice payment methods that businesses can offer clients, such as electronic payment systems that get you paid faster. Online payments also make it easier for your customers to pay you. Plus, with today’s highly secure platforms, Jeff Nock Iowa believes that offering online payments makes it convenient and safe, while also offering another form of online customer engagement that can later be used for other digital marketing campaigns.
3. Ask for Deposits on Large Contracts
If your business operates on long term financial transactions, Jeff Nock Iowa suggests a system of payment that benefits your cash flow. For example, get a large down payment upon contract approval, then schedule regular payments for each stage of the project. This payment model has been used by software developers for years and could apply to any service provider, such as construction or home improvement trades where a percentage of payment is due at certain stages and final payment is due after the project is completed.
4. Get Control of Your Cash Flow
Always know your cash balance by tracking your cash flow from day-to-day. With today’s automated accounts receivable and accounts payable tools, cash flow can be managed in real time so Jeff Nock Iowa suggests you stay on top of your invoicing after products or services are delivered. As part of your accounting staff duties, make sure they call or email your customers with a gentle reminder, the first day a payment is late.
Jeff Nock Iowa has seen how businesses can fail due to poor cash management skills. By keeping track of your company’s cash flow and reducing your amounts of borrowed cash, your company can grow faster and maximize profits.