Cash Flow for Small Businesses

Why is it that money flows in but then gushes out? It is easy to feel at times that no matter how hard you work, there is a never-ending cash flow crisis. You work so hard at creating a business but at the end of the day, it always feels like you can’t get a handle on where your money is going.

Every business has standard overheads. They include rent, wages, taxes, utilities, etc. You believe that your products and services are competitively priced and that you and your team are getting good results, but still, there is no money. What do you do about it?

One method that is all too common is to bury your head in the sand. Juggling finances becomes a priority, instead of getting out there and creating new business. This can be solved so easily, but many people are afraid of what it will all look like if analyzed too closely that they don’t do anything about it.

There are several ways to address this. Finding the method that best suits you can take some time, but I promise you, the outcome will be such a weight off your shoulders that it will free you up to do what you do best – create more income.

Budget VS Actuals

If you were to sit down and off the top of your head write down where your money goes, I can guarantee you that there are areas that don’t occur to you. Without knowing where your funds are going, every week and every month will have you scratching your head and wondering why you are broke again. And there are often times of the month where you’re feeling flush like it will all work out, and then BOOM, it is gone again. You have it within your power to put a halt to this.

Spreadsheet – When and Where Does the Money Go?

A simple method of knowing where your money goes, and when is to create a spreadsheet – ahead of time. What is past is past, so stop worrying about it and move on to alleviating the cash flow crisis ahead of time.

The spreadsheet is created from your bank statement. You don’t need to do a profit and loss statement; you just need to know what money is coming out of your account and when. 

1. For the past month, list the date the payments came out, what they were for, and total them. 
2. Compare it to the previous month, and each month for the last 12 months. It will take some time, and be tedious, but it is amazing what it will show up.

There are standard payments every month on set days. Rent, insurance, wages and there are those expenses that happen constantly throughout the month – Stock, utilities, taxes, general expenses, etc. Once you are familiar with the pattern of the fixed monthly payments, it will be easier to plan when to pay for other items.

Do the same for your income. In your spreadsheet, list your gross sales (before the cost of goods or services are removed), and the dates they are being paid. One thing this can identify is whether your customers are taking too long to pay, and what time of the month is your peak income period.

Once you know when money is coming in, you can plan for when it is going out. For example, if you have rent going out on the same day as wages need to be paid, and every month this creates a hardship for you, consider what it would take to change one of these payments. You could contact your landlord and request that the monthly date is changed or consider paying two weeks earlier every month. The first month will be hard, as you will effectively be paying two weeks extra rent, but if it smooths out the bump from historically paying both rent and wages on the same day, within one month it will be easier to manage.

Certain expenses might be paid quarterly, such as utilities. Consider approaching the utility provider and requesting to receive your bills monthly. Or the exact opposite might be true for you. If your income is paid quarterly, approach your service providers and request quarterly bills. 

Annual expenses can really hit you hard – insurances, registration fees, landlord’s outgoings, etc. consider approaching these companies and requesting monthly or quarterly payments. 

Income – Is It Enough?

Now that you have taken the time to smooth out the outgoings, it is time to address the income. When you were creating the spreadsheet for expenses, did you find that month after month there were costs that you hadn’t considered when pricing your goods or services? For example, marketing costs can get a bit out of hand, and if they aren’t factored into your pricing structure they can be eating away at your bottom line. Marketing can be vital for your business and can be a low-cost method of creating new business, but they are still a cost and need to be paid for. You might find that it is time to re-evaluate your pricing structure.

Website – Is it Updated Regularly?

One cost that you cannot avoid or ignore is the vital requirement of an up-to-date website. Your website is the one method you have of reaching people when you have gone home for the night. Getting an effective website developed by a company such as the New Zealand-based agency Small Business Web Designs can make all the difference to your ability to attract new customers. Your business is always open, operating 24/7/365 which means you can sell all day long. And if your website is geared towards conversion, you’ll translate a lot more traffic to dollars. 

Sundry Expenses – Do We Really Need It?

They say that look after the cents, and the dollars will look after themselves. Check out just how much is being spent monthly on those little extras – using a cleaning service instead of each person looking after their own workspace or grabbing stationery at the petrol station instead of through the stationery supplier. It all adds up. Planning your stationery needs rather than grabbing on the run can save you considerably.

Knowledge Is Power

Knowing when and where your money goes and knowing that the funds will be available for these expenses will relieve you of the daily anxiety of juggling the expenses. And if you aren’t juggling anymore, your time will be freed up to create more income.

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