A small business’s cash flow can be erratic.
Cash flow management should be a primary concern for your business.
A small business’s cash flow can be erratic. Every security dealer is constantly on the lookout for that perfect balance between customer payments, current work orders, inventory and other financial factors. Keeping track of your capital is an ongoing process. If you make mistakes, the results can be costly. Here are some signs that your cash flow management process might be coming up short:
Inventory shortages
You can’t do business without the right tools. Do you find yourself constantly short on parts or other supplies needed to complete work orders? If so, you may want to be careful about how your next steps could impact your cash flow.
For example, companies can find themselves missing necessary items because they have reached a credit limit with their vendors. This means they may get nervous about placing orders for supplies when their current bank balance is low. But this kind of strategy could have negative consequences in the long term.
If you put off jobs due to limited supplies, then you are pushing the profit from those jobs into the future. Having the parts on-hand to complete work orders as they come in will not only get that revenue in faster, but a speedy response time to customer demands will increase customer satisfaction and longevity.
“Customers won’t like being on backlog for too long.”
Long Backlog
Too many small companies don’t see the danger of a large backlog of service. They tend to see a large list of future jobs as money that will soon be in the bank. While it’s always good to have future work on the ledger, an extended list of jobs that aren’t immediately being billed in the near future could lead to cash flow problems. Not having cash on hand prevents you from utilizing the funds to prepare for client needs.
Customers won’t like being on backlog for too long. If you’re unable to offer timely service, you may risk losing business to your competition, which means that suddenly, the future payments you were expecting from the backlog could disappear.
A large backlog could be indicative of an inefficient workforce. More productive employees will usually lead to quicker job fulfillment and payments for those jobs. The faster a crew can get through pending jobs, the more work they will be able to take on.
Payroll concerns
Payroll is typically the largest expense for any small business. If you’re finding it difficult to meet your payroll deadlines, it’s a good idea to start taking a close look at your cash flow.
Delayed paychecks lead to lower morale. When an employee doesn’t feel his or her paycheck is consistent, they may be tempted to leave for more secure work. If they do stay, they may divert their time and attention to trying to find new accounts to compensate. It’s important that the people in charge of cash flow are focusing on their most important day-to-day responsibilities, so your other employees can focus on theirs.
Tips on improving cash flow
Cash flow restructuring can seem like a difficult task, but here are three basic tips on how to start developing smart financial habits:
Keep Score – Know your numbers. Entrepreneur magazine said the key to good cash flow management is the ability to create cash flow projections in advance. All financial data needs to be carefully tracked. Financial software for security dealers can take data from customer payment history, vendor demands, work schedules, job costing and any other available financial information to create a working cash flow system for the present and future. This software can also track job completion and reduce backlog. The point is to streamline your data to meet customer satisfaction and manage financial progress and projections.
Plan B – If at all possible, set aside funds for emergencies, and make sure you have the necessary inventory to complete jobs. This might seem like common sense, but during times of financial success, too many small business immediately funnel the excess profits into growth without banking some for less lucrative times.
If a cash reserve is not available, Forbes magazine suggested establishing a good relationship with a reputable credit provider and your banker. Make sure this is just a temporary solution. You should avoid carrying too much debt, but it’s not a bad idea to have a working relationship with a source of cash for those unexpected ebbs in business. Pay it back as soon as you are in the black.
A loan partner can help you work out a short-term cash solution.Consistency – Consistency is the best tool to fighting the erratic nature of cash flow. The more reliable you are with your billing practices, the more reliable your customers can be with their payments. Provide multiple payments options and routinely delivered statements. Encourage prompt payment with explicit due dates and clearly-defined late fees. Don’t ignore past dues, and establish a system to show tardy payments will not be ignored. Automated billing technology can help security dealers establish consistent practices that can lead to a more secure cash flow.