Roughly half of all American small businesses fail within their first five years of operation, according to the U.S. Small Business Administration. The organization cites many reasons that finance expert Michael Ames believes causes small businesses to fail, including insufficient capital, over-investment in fixed assets, poor credit arrangements, and personal use of business funds. All these issues stem from one larger problem within small businesses: poor cash management. The following strategies can help you manage your small business’s money better.
Automate Your Payments
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Automating your payments provides many benefits for your small business. Once you set up your payments, you’ll have one less task to worry about each month. The amount you owe will simply leave your account when you need it to each month. You can say goodbye to late fees and other penalties.
Since you can schedule each payment for its due date, you’ll probably find the money stays in your account longer since you won’t be tempted to make an early payment when it’s on your mind. The longer you keep your money, the more interest it attracts.
Use Printable Deposit Slips
You can easily lose track of where your money comes from when you complete your deposit slips at the bank. Printable deposit slips, such as those available through QuickBooks, help make tracking your business income and supplier payments easier. The program works with the information you’ve already entered into the QuickBooks system, saving you time and ensuring your deposit slips are correct and comprehensive. Simply print them and retain the deposit summary stubs for your records.
Build Up an Emergency Fund
Running a small business is unpredictable. Sometimes you’ll turn significant profits and other times you’ll struggle to scrape together your payments. Seasonal demand can influence your business’s highs and lows, but often other, less predictable factors can enter the picture. The most successful entrepreneurs stand ready for whatever comes their way.
Build up a nest egg when your business is booming so that you can still meet your financial obligations during lean periods. Michael Dubis, a certified financial planner who spoke to Karin Price Mueller of Entrepreneur, suggests keeping between three months and a year’s worth of expenses in a business emergency fund.
Create a Cash-Conscious Workplace Culture
Too many employees think the finance team and company directors are the only ones responsible for cash management. However, almost every person in your business has a role to play in money management.
Make your workplace a cash-conscious environment. Encourage your employees to think carefully about expenditures and speak up when they have budget-saving ideas. Offer sales bonuses based on collections, rather than sales numbers, so that your sales team isn’t tempted to offer excessively liberal credit terms or big discounts to close a deal. When all members of your business work together for better cash management, you’ll find that your cash flow improves.
Effective cash management can challenge small business owners, but with the right strategies in place, money problems needn’t sink your firm.