We have recently discussed a bookkeeping tip on an interesting money study. However, the study only looked at individuals. We see small to mid-sized business all the time for their bookkeeping. A common problem they seem to have is ready availability of cash. Said cash can be used for payroll, materials, and other common expenses. We thought it might be a good day to discuss what to do in the bad times. So here are our 6 ways to manage a small business when it’s low on cash.
1. Keep Records!
The exclamation point is justified. How can you know you are low on cash if you don’t keep records on how much is going in or out? These records should be kept either electronically or via hard copies. We actually recommend both for backup purposes. Both digital and physical records can be subject to damage. In fact, even in the news today are reports of yet another new computer virus that gobbles up your hard drive. Attackers then have the nerve to ask you for ransom in order to retrieve it.
2. Make a Schedule
Many common transactions in business happen on a regular basis. You know when receipts are due, when payroll goes out, etc. But some clients are unpredictable. They can even be shysters trying to get something for nothing from you. Establish the preferred way to pay when discussing billing or handing over invoices. You may also discuss payment options such as:
- Give clear deadlines for payment: In no uncertain terms state the due date for payment such as “due on receipt, due 14 days after receipt of invoice, due on Month, Date Year.” These practices will ensure you and your clients are on the same page.
- Outline fees for late payment: These are permissible in many states. However, you should consult a local small business attorney in your area. Pay careful attention to the percentages allowed in your state.
- Consider allowing early payment discounts: Is the cash you are missing costing you money in interest or other areas? Consider giving clients bonuses in the form of a discount for paying early that can actually pay for itself.
3. Get the Hard Data
If neither of the above works for you, consider having a professional financial statement prepared for your business. It can include balance sheets, income reports, expenses, and much more. These reports will provide a clear, to-the-penny bird’s eye view of your business’s financial status. Best of all, it is done by someone completely impartial. The Motley Fool even called financial statements “a great way to learn about (a business’s) financial condition.”
4. Utilize Credit
If you need a little cash, use your business credit card to make a purchase. It can even get you more business miles. On the traverse side, if you aren’t sure you can pay the balance at the end of the month, you could be causing more problems than you solve.
5. Cut Extravagances
A great way to get more cash is to cut anything extravagant. Do you have cable tv at your business that you rarely use? Cut it. Do you have a weekly cleaning, landscape, or other service? Can you cut it to every two weeks? Your records and/or financial statement can give you the best idea of what to cut.
6. Sell, Sell, Sell
A great way to get some cash, have a look around your facility. Is there a piece of equipment that is rarely or never used? What can you get for it? If you replaced a piece of equipment, don’t just throw out the old one or let an employee walk off with it. They probably already know what you should. You could get big bucks for it on Craigslist, Ali Baba, or other. The same goes for a piece of equipment that breaks and is not repairable. Consider taking out all the parts in good working condition and selling them.
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If you live in Houston and need some bookkeeping tips for your small business, feel free to contact us for assistance.