Small Businesses Gone Wild/Cash Flow 101

1. Know your business/market. What factors put stress on sales/cash flow?

In the Northeast seasonality plays an important role in many businesses. A ski shop will not be selling skis in June unless they are deeply discounted; on the other hand rentals are down on Cape Cod in the winter. Everyone is heading south for vacations.

Believe it or not the weather is an important factor as well. A convenience store has half the sales on a rainy day as it does on a sunny day. Those same Cape Cod rentals are hurting during a rainy June. No one is shopping or venturing out during a blizzard.

Location, location, location! Some things never change! Who are your neighbors? Do they complement or compete? Do you naturally get a lot of foot traffic? The rent maybe cheap but does anyone know you are there? (Bonus tip: And just because your rent is low make sure heat and electricity are not off the charts).

Why is this important? Staffing and purchasing goods are the number one reasons and your biggest investments.

2. What is your policy regarding Account Receivables? If you are retail business you probably don’t have one unless you have some customers on account. Never the less cash is king and how fast do you want to get your money? Due on Receipt, offer discounts (if you are a contractor do you require a deposit?), net 30, net 60, yesterday?

Did you know with the advent of credit card use you can now send an invoice via email through your QuickBooks file and allow that client to pay the bill online? Yes there is a percentage fee but you save on paper and postage and track whether they have opened the email. Talk about being green! You can also process credit cards through your smart phone with same results. Oh and the payment is automatically applied to the correct invoice! Win Win!

3. One of the biggest stress factors on cash flow is debt. Or not using it wisely. There is a time and place for debt: Capital investment where the debt can be spread out over a longer term at a lower rate. Many businesses carry the debt until they sell their business then pay it off is another option. Short term debt (payable within a year) should be used for purchasing goods in the off season and paying for it during the busy season. That is not what where are doing. We are carrying what is supposed to be short term debt for years. It erodes our cash flow every single month.