The downturn is over for your business and sales are really picking up. You’ve been busy and your Profit-&-Loss statement reflects all your hard work. You’re in the black and doing better than you have for years. But why are you running out of cash in the bank?!?!
It’s common to face a cash crunch during a growth cycle. You’re laying out cash day in and day out on office expenses, subcontractors or consultants, travel expenses and business development charges. Technically, you have the sales to cover these costs and then some. So, why is cash low? Check out your balance sheet for some insight:
- The number one reason why you might be short on cash is if you’re carrying a high volume of accounts receivables. Your clients love your work, but still take 30 days to pay you …if you’re lucky! How do you tighten up your receivables? Think about accepting credit cards for payment or offering early payment discounts to your clients. You may cringe at the 2.7% that your merchant service provider wants to charge, but if it means pumping up your cash balance it might be worth it!Looking for a cheaper way to pull in those receivables? Don’t dismiss the value of a personal call to your client. Sometimes, the easiest way to get that invoice paid is just to ask nicely!
- Another easy fix to freeing up cash is to put some of your own expenses on credit cards. As long as you pay off the balance of the card each month, this will give you a couple extra weeks to pay your expenses. If your vendor doesn’t accept credit cards, ask them if they can give you better terms for payment. If you’re on “Net 15” terms, ask if you can pay in 30 days instead. Sometimes, those extra couple weeks make all the difference!
- Lastly, think about approaching your banker for a Line of Credit. If your Profit-&-Loss statement looks great, then this is the time to show it to your banker and apply for a line of credit. Your banker understands the cash crunch that you’re facing during a growth cycle and should be able to offer you competitive rates. Having that Line of Credit available can be a great way to cover the couple of weeks between the time you need to pay your bills and the time your client pays you!
Planning for cash crunches and being proactive in addressing some of these issues is the key to growing your business. If you’re not sure how to plan your cash flow or need some help in determining the most profitable path to growing your business, hire a pro! A Virtual Accountant can help you lay the groundwork for many profitable years to come. Click here to review our services.
Deb Howard Greenleaf, EA, CEO and Principal, of Greenleaf Accounting Services provides virtual accounting and bookkeeping services and specializes in financial management to consultants, coaches, solo professionals, and other small business owners across the US. Deb is an Enrolled Agent (EA)—an IRS-licensed tax professional—and specializes in small businesses and entrepreneurs filing Schedule C or as an LLC. As an Advanced Certified QuickBooks ProAdvisor, Deb spends her day in QuickBooks Online and specializes in providing QBO support.