Cash is essential in every business. Knowing how to manage cash in your business is key in order to drive growth and profits. If you don’t have cash or if you mismanage cash then growing your business could be a very difficult task. I have put together some tips that you can put into action now, and they will help you manage and increase cash flow in your service based business.
Raise prices – I know that this may scare some people out there, but a simple 10% price increase helps the cash flow in your business immensely. If you have never raised your prices then you should consider doing so. Don’t feel that you will loose clients if you raise the prices. You may have long standing relationship with some of your customers, and chances are they won’t oppose the price increase. Those customers that do oppose the increase in price do not value your services, and are probably the ones you want to get rid of anyway. Start by writing out a letter about the price increase and your reason for doing it, you’ll be surprised at how your customers will comply.
Open various bank accounts – Many times we log into our bank account and find that we have some money and make conscious decisions of spending money by what our checking account balance says. The repercussions of this is that we end up with low-checking account balances, and then wonder where the cash has gone? This happens because we make decisions on the spot about money and we don’t think about future obligations or expenses we might have in our business. A great way to avoid doing this is by opening up various bank accounts at your banking institution. Each bank account should have a designated name for spending, for example: sales tax, payroll, taxes, operating expense, and revenue. Setting up your bank accounts in this manner allows you to have better visibility of your money and allows you to plan ahead.
Set aside savings – This goes hand in hand with what I mentioned above. Open a savings account called to prepare for months with less business. Save as little as $5 a week during the busy months, which will help when your bank account is dwindling from the months of low revenue.
Pre-payment – Ask your customers to pay you in advance for a contract. The more customers you have on a 8 to 12 month contract helps increase your cash flow. You can expect that cash in your account every month. Having predictable income each month allows you the flexibility of spending money on operating expenses.
Merchant services – Accept credit card payments on your merchant services devices. You can collect payments faster by asking your customers to pay using their credit cards. Many merchant services have devices as an attachment on your phone, which makes it easy to collect payments anytime and anywhere.
Cash flow statements – Use your cash flow statements to analyze your cash movements. You can utilize your cash flow statements in order to plan ahead and find out where you are spending the most. Once you analyze the areas in which you are over spending, you can then create a plan on how to keep expenses down.
If you have any questions about increasing cash flow, please feel free to contact us at Cycle CPA!