22% of businesses cite cash flow management as a top challenge and obtaining cash flow to operate their business is a part of this challenge. Cash flow management effects veteran business owners in large numbers. In fact, according to the SBA Office of Advocacy, over sixty-nine thousand veteran-owned businesses closed operation due to inadequate cash flow. In order to ensure your business can find growth, learning to manage your cash flow has become a necessity.
Understanding cash flow management requires an understanding of the three aspects that define what cash flow is. The three components are: Operating Cash Flow, Investing Cash Flow and Financing Cash Flow.
If business cash is managed properly, you can do more during times of growth. 28% of small businesses use extra cash to expand operations, infiltrate new markets and open new locations. 33% purchase more inventory or equipment, allowing these businesses to save costs of labor and increase efficiency.
There are four strategies to improve business cash flow:
Properly Managing and Collecting Invoiced Payments
In order to ensure invoices are paid do not just assume customers will pay in a timely manner. Having a collections process in place and someone to manage those receivables will help over time. Customer reminders via email, offering an upfront payment discount or late-payment penalty, and investigating short-term financing to bridge receivable gaps are all options here. No matter what, a solid communication strategy in place for customers is important.
Reduce Operating Costs to Necessity
Sometimes owning a business requires reactionary purchase decisions. So, it is important to analyze spending regularly. Managing spending and operating costs is a good strategy for a healthy cash flow situation. Consider purchasing used equipment versus new, managing usage of supplies, and measuring all efforts to ensure that business targets are hit. If you are working with a vendor and they are not helping your business grow, this may be a cost to cut.
Strategically Pricing your Products or Services
Many business owners struggle to price their products or services so that sales goals are met. Pricing also must balance the value provided to the customer and effort spent providing that value from the business. In order to develop a reasonable pricing structure, determine the cost for production of the product or service. Researching what other businesses are charging and what value they bring can allow for a competitive edge. Lastly, take into consideration the audience, location and customer base of the business.
Using Technology Solutions
Technology can assist in ensuring higher volume at a low labor cost. Marketing on websites like: Groupon, Angie’s List or participating in Facebook groups can increase the volume of customers a business serves.
Taking payments electronically, offering various payment options, and managing payments using accounting software are ways to automate receivables and reduce payment gaps. Xero, Pulse and CashAnalytics are some cash-focused technological solutions.
More Resources for Veteran Business Owners
The above is an excerpt from the Complete Guide for Veteran Business Owners. In the guide, you can find more on cash flow management, networking resources, business development and more. You can download it for free here.