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Systematize Your Business – Cash

We’ve all had that moment—our tax bill shows up on schedule, but we forgot about it and we are wondering how are we are going to pay it. Or an unexpected repair on a critical machine stresses us out.

But there are higher costs when it comes to not having cash flow or even reserves in your business—because things come up, unexpected costs, that without cash on hand can cripple if not end your business.

How can you make sure that you have the cash flow coming in to your business? And what should you have in reserve for those unexpected costs?

Money Out. Money In.

Make sure your books accurately reflect what money is going out and what money is coming in. You can have a ton of invoices out, but if your clients aren’t paying them, this could cause a significant logjam in your business. It feels great to make sales, but it’s better if your clients are paying on time and you are putting cash in the bank.

Who is Late?

Do you have an accurate account for clients that have not paid? How are you going about retrieving that money? Do you send out emails? Call? Do you clearly state when the due dates are?

Some small businesses feel guilty “hounding” businesses—but at the end of the day, businesses need to be paid on time to keep their employees going and their services or products offered.

To help reduce the stress of calling those who haven’t paid, create a day during the month where you simply call everyone who owes and remind them of the payment. It may have slipped their mind or they have had changes in their account management. It’s important to follow up, making sure they have not forgotten you.

Calculate The Number

By having an accurate number of the bare minimum you need to make it each month, you can create a target for your business. This is the amount of money you need to have to get you through the month. To calculate your target number, figure out your:

  • Salaries and wages.
  • Day to Day Operation Costs
  • Loan and Debt repayments
  • Supply/Inventory costs
  • Taxes
  • Equipment

After totalling that number, you’ll know what you need to do to operate on the monthly basis.  Guard and fight for this number, making sure not to spend where it isn’t needed and necessary.

Guard your purchases

Many businesses spend their way into foreclosure. Small purchases add up; expenditures seem necessary at the time, but soon after, when the dust settles, certain things didn’t need to be bought. That money could have been allocated elsewhere or even saved.

Put a system in place to carefully monitor your purchases so your cash reserve are not depleted and you are left scrambling for this month or next month’s number.

These systems include:

Each individual business owner needs to decide for themselves what a comfortable cash position is. We recommend to have or work towards having at least 3 months operating cash in the bank. Also, to save all tax dollars you collect in a separate savings account.

When designing your cash systems remember that you are not a bank and it is ok to shorten credit terms to customers in this new electronic economy. Gone are the days when mailing cheques was the only source of getting paid. Consider your busiest earning months and plan vacations and staffing around being able to fully take advantage of times.

If you are struggling to pay off credit card debt it is even more important to reach out for help.  If your profit is going to pay interest you are working for free.  Business is math and it’s ok to hire a tutor, your future self will thank you.

What is one financial tool  or training that would be helpful to you with your cashflow?

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