In small business today one rule is non-negotiable: cash is king. You need to have cash to operate your business, purchase your supplies and any needed inventory, to reinvest and grow, and to pay yourself. Although you may not see much actual cash with the use of credit and all the digital technology available today, it’s still crucial that you keep a wary eye on income, expenses and cash accounts. Here are a few tips that can help small business entrepreneurs raise their cash consciousness:
• Hire Wisely: Although it can get overwhelming trying to do everything by yourself, you need to carefully consider when and how to bring on employees. Some entrepreneurs rush out and hire expensive people without really thinking through their role or running the financial projections. Consider alternatives such as mentors, consultants, freelancers and interns first. If you do feel the need to hire, spend some time projecting the amount of additional business you will bring in because of this person and negotiate a salary package accordingly.
• Set Fair Prices: Sometimes new entrepreneurs think that their prices have to be low to attract new customers, but this can set a dangerous precedent for the future. Place a fair value on the product or service you are offering, while making sure you can still make a reasonable profit. Don’t necessarily look at your competitors’ pricing because you don’t know exactly what goes into their decision-making process. They may be using different materials or might be receiving quantity discounts. Only offer a discount when you have a very good reason, or customers will expect one all the time.
• Watch Cash Flow: Another good mantra is that money should come in quickly and go out slowly. Keep a close eye on your receivables and make sure your customers are paying within the terms you have set. Look closely at the jobs you perform or the products you sell; each one should be driving money to the bottom line unless it is some type of “loss leader.” If a product is not doing its part, you may have to consider letting it go. Those who really can’t understand the numbers side of the business need to hire an accountant they can trust to help.
• Plan Growth Carefully: Things may be looking great and you might think it is time to expand, but be careful that you don’t set your goals too high too quickly. You might need to borrow money to achieve your new goals, and it could take some time to put your action plan into effect. Meanwhile, the loan payments are causing a drain on your cash flow at a time when you don’t have new revenue coming in yet.
• Always Be Marketing: Don’t just wait for down times to promote your business; market consistently through good times and bad. Digital technology and social media make it easier and more cost-effective than ever to reach out and connect with your target audience.