NEW YORK, Dec. 08, 2016 (GLOBE NEWSWIRE) -- According to a recent study by JP Morgan Chase, half of all small businesses only have between a month and two months of cash on reserve. One-quarter of small businesses hold a cash reserve of more than two months and another quarter of small businesses were barely surviving, with reserves that will last less than two weeks.
Over the last year, small business owners in the United States have been pushed to the limit. With natural disasters, civil unrest and a number of other unforeseen events occurring at a higher frequency, many small businesses were severely handicapped or even forced to close their doors for good. The average small business has approximately twenty-seven days of cash buffer on hand at any given time. This means that the longer that a small business isn’t able to operate in its normal capacity, the closer it teeters on permanently shutting down.
The JP Morgan Chase study furthered that no matter the industry niche, the majority of small businesses surveyed have roughly an equal daily cash outflow and inflow. This factor alone creates a major obstacle in building up any type of a reserve for a rainy day. Keeping these things in mind, it makes it that much more imperative for small business owners to properly prepare for the unexpected by creating a reserve and effectively optimize their cash flow.
Creating a reserve goes hand-in-hand with optimizing your cash flow. Unfortunately, optimizing your cash flow doesn’t just stop at an increase in revenue. A solid routine of cutting costs, speeding up invoicing and accruing interest on various business accounts are also determining factors in successfully establishing an adequate reserve and boosting your cash flow.
Here are some ways to effectively create a cash reserve and optimize your cash flow:
Watch Expenses
Adopting and following a detailed financial plan is by far the most effective way to analyze your small business’ expenses. Implementing a solid financial plan is not quite as complicated as it sounds. If you have ever created a monthly budget to track family or personal expenses, then following a detailed financial plan for your small business can be done with ease.
Consider hiring a financial planner or certified public account to assist you in creating a financial plan for your small business. Making adjustments as needed and diligently monitoring the plan is essential in successfully cutting costs such as reoccurring expenses that manage to slip through the cracks and add up over time.
Prompt Invoicing
It’s pretty simple. If you don’t bill a customer, you won’t get paid. Many small business owners are often so consumed by many of their day-to-day challenges that neglect one of the very things that will give their revenue a boost; prompt invoicing.
Remember to promptly issue invoices. If your invoices are based on sales or completion of services, be sure that your accounts-payable process immediately generates an invoice. Commit to sending out recurring invoices on a certain date every month. Consider utilizing an invoicing software to simplify this process for your small business.
Offer Payment Options
There is beauty in simplicity. In this case, the beauty comes in the form of making it as simple as humanly possible for your customers to pay for the goods or services that they have purchased. Make sure that your small business accepts a variety of payment options, such as, cash, checks, credit cards, money orders, automatic withdrawals and/or online payments.
Depending on what goods or services that your small business offers, setting up your own payment plan can potentially be a convenient way for customers to provide monthly payments. Be sure to carefully consider the pros and cons of offering additional options. Also, pay close attention to the various costs and fees associated with each payment option that you are considering as an option for your customers.
Adequate Gross Margins
Regardless of what goods or services that your small business offers, ensuring that an adequate amount of profit surpasses the total operational costs is a necessity in successfully optimizing your cash flow.
Utilize the standard formula for calculating gross margin. Subtract the cost of products sold from your total revenue. Take that amount and divide it by the revenue to find your gross margin percentage. If you don’t consider yourself to be a math whiz, there are a number of online tools that can help do the job.
Request Progress Payments
If your small business is involved in a large project, requesting progress payments are a win for both the customer and the small business owner. Progress payments are installment payments that are made on a periodic basis over the course of an ongoing project.
Progress payments are a great way to optimize cash flow for small business owners because they do not have to wait until the project is complete to be paid or come out of pocket for supplies and labor associated costs. Progress payments are also beneficial to the customer by allowing them to make smaller and more affordable payments as mutually agreed upon milestones are completed.
Replace Old Inventory and Equipment
Outdated equipment can needlessly take up space and accrue unnecessary repair costs over time. Old inventory continues to lose its value, especially as you update your small business’ physical products. All of these things are deterrents in growing a proper cash reserve and optimizing your overall cash flow.
The equipment replacement process can be overly time consuming and frustrating for small business owners and employees alike. Managing, maintaining and operating a number of different technology brands and models can be also be very costly in a number of ways. Consider leasing new equipment as a cost-effective way to update technology and even lower energy-related costs.
Whether you are dealing with old equipment or outdated inventory, there are a number of ways to rid your small business of the excess in exchange for an increase in cash flow. Selling old equipment can result in taxable gains and some profit. The same goes for creatively clearing out older inventory by way of a “blowout sale” or liquidation event.
Monitor Labor Costs
Employees are obviously a vital element for any small business. However, in order for a small business to create a reserve and optimize their cash flow, labor costs must be kept at a minimum. This boils down to a matter of not over hiring while making sure that you have enough employees to get the job done. Over-hiring can quickly turn into having a number of idle employees that are being paid for doing very little. This equates to a large number of unnecessary expenses being accrued.
Employee retention is another important factor in creating a proper reserve and optimizing cash flow. Do all that you can to reduce turnover because recruiting and training is both, expensive and time-consuming. Consider hiring contractors and temporary workers on a per-project basis. This will help your small business avoid the added expense of benefits and payroll taxes.
Need Funding?
Marketing trends come and go, but in order to properly capitalize on growth, you must stay current. Mobile will continue to be entrenched within the business world, so be sure that your business is well-supported. 800fund.com understands that working capital is a necessity for growth and success. For this reason, the company furthers its commitment to support and service their small to medium-sized business clientele while powering local economic growth by way of providing alternative lending solutions to traditional banking.
After over a decade of finding ways to approve business owners that have long faced the struggles of securing funding through banks and other lenders, 800fund.com prides itself in its “1 to 1” program that starts at just $1,000 and advances up to $1 million with working capital repayment terms from 30 days to 24 months. In addition to this specially designed program, 800fund.com simplifies and expedites a traditionally lengthy process with swift decisions and same- or next-day financing in order to meet the needs of today’s small to medium-sized businesses.
For business owners that are interested in the program they can visit www.800fund.com or call (212)865-3863.
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About 800fund.com:
800fund is a leading merchant cash advance and short-term alternative lender to small- and medium-sized businesses. It is headquartered at 30 Broad Street, New York, NY.