A brilliant idea isn't the only thing a smart solopreneur needs for a successful business. Though it may not be as exciting as other aspects of being an entrepreneur, a strong cash flow management system is critical to keeping a company in business. Track your cash flow weekly, monthly, and annually. If you're looking for ways to improve your business's financial situation, these tips will help you get on track:
Make Time to Evaluate Your Cash Flow on a Regular Basis
Solopreneurs wear many hats, so it's important to prioritize managing cash flow by scheduling time to evaluate it weekly. You'll experience less stress and a have smoother operating plan if you're proactive about managing your income and expense streams before problems arise. Whether your business is just launching or even if you have a few years of experience, now is the time to ensure you have access to enough cash to comfortably cover your day-to-day expenses.
Getting proactive about cash flow may require an operating line or a working capital loan to help smooth out the inconsistencies in income when the business is getting started. You can also use these forms of financing to pay bills related to your various projects.
As a solopreneur, it's up to you alone to learn about cash flow and arrange business credit applications. Do this before your time gets swallowed up in the day-to-day operations of your business.
Invoice Promptly and Regularly
Take a good look at your current income flow. If needed, re-evaluate your invoicing and billing cycles to decrease the time between project completion and getting paid. Since you're so involved in the inner-workings of your company, working to create and maintain a constant income stream is a good idea. Steady income makes cash flow management easier because you'll know that you have enough money available to cover your bill payments, payroll and supplier payments.
Get serious about past due accounts receivable
Don't delay in following up on late paying customers — contact them as soon as they're even a day late. Dealing with delinquencies can be tedious and annoying, so look for ways to discourage late payments. Consider introducing a percentage penalty for late payments or a discount for early payments as you launch your business. By using these strategies, your customers will know right from the beginning that you're serious about getting paid on time, every time.
Create a Bill Schedule
Simplify your finances by creating a bill schedule to pay your regular expenses at the same time every month. While rent and/or mortgage and loan payments are generally fixed, set your other bills like utilities (electric, heating, and water) and Internet/phone services to be paid on the same day each month. Managing your bills this way creates a consistent routine of outgoing cash flow.
Pay Suppliers When Its Advantageous for Your Business
Often paying your suppliers on the last possible day (the day the invoice is due) seems like the right tactic to keep the cash flow in your hands until the last possible moment. And this might make sense if paying for the supplies needed to complete work for your own customers might cause hiccups before you've received the payment for the job, especially if you have a weak cash flow. However, there are situations where it actually may be advantageous for you to pay sooner.
Read the fine print of your supplier's payment terms carefully to see when your payment is due. It doesn't always makes sense to pay the bill on the last possible day, as there are times when suppliers offer discounts for earlier payments. And if you pay on the last possible day, and that falls on or near a weekend or holiday, you risk a late payment, which can lead to additional fees. Paying on the last possible day keeps cash in your account longer, and gives you more time to collect on your outstanding receivables, but it is not necessarily a hard and fast rule. Pay close attention to your bills, and to your suppliers, so that you can pay when it will cost you the least.
As your business expands, your financial needs may change. Re-evaluate and revise your cash flow management techniques to keep money flowing smoothly in and out of your business.