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A cash flow shortage is the number one reason why small businesses fail, but even mid-sized and large companies need smart cash flow management to survive and thrive. Insufficient cash forces companies to make difficult decisions about who will get paid and when. Unfortunately, this can lead to small businesses paying vendors and suppliers late, being overdue on rent, and even forcing employees to wait on paychecks.
As a copywriter or even a small business owner, you likely experience one, or maybe even all, of these three common cash flow problems: irregular income streams, delayed payments, and client dependencies.
So, are you ready to manage cash flow this year?
Great! I am so excited you’re here. Hi! I’m Tillena, the owner of Tillena Sigler’s Bookkeeping. At Tillena Siglers Bookkeeping, we help online business owners refocus on their passions and their clients by managing their bookkeeping for them.
Cash flow management and bookkeeping can be a confusing process for a lot of owners. So, if you are experiencing any of these common cash flow problems, you’re not alone! My hope is for this blog post to aid you in getting out of a tight cash flow and into your dream flow.
4 Best Tips to Effectively Manage Your Cash Flow:
#1 PLANNING AND FORECASTING.
Effective cash flow management hinges on predicting when cash in-flows will slump so to hold onto enough cash during surges to fill in the gaps. Wedding photographers are a perfect example of irregular seasonal income; they work hard in spring, summer, and fall to typically have a slump during the winter when weddings are less common. If you face similar irregular income, a budget will be your best friend to ensure you never run out of funds!
Your income statement, also known as the profit and loss statement (P&L), in QuickBooks Online (QBO) should be used to forecast future income and manage cash flow effectively. Start by analyzing your revenue and expenses over a specific period, such as a month or a quarter. You can then use this information to identify trends in your income streams and expenses to predict future cash inflows and outflows.
Additionally, using QuickBooks' budgeting and forecasting tools (Plus or Advanced QBO subscription is required for these features) can help you project future income based on historical data, allowing you to anticipate potential cash flow fluctuations and plan accordingly. Regularly updating and reviewing your income statement in QuickBooks enables you to stay proactive in managing your finances and ensuring the stability and growth of your business.
If you don’t currently have the core financial statements (Balance Sheet, Income Statement, and Statement of Cash Flow), this will be your first step. If the Quickbooks Online subscription is out of your current budget, Xero and Wave are great alternatives. Wave is a free software that will cover your bases; however, I do recommend getting accounting software that can grow with your business, as transferring your accounting file is not always seamless. For this reason, Quickbooks and Xero are my top choices!
See step 2 for my budgeting pro tip. 👀
#2 REDUCING SPENDING.
Understanding where spending has exceeded (or is on pace to exceed) budgeted amounts is a surefire way to identify areas that need to be looked at more critically. You’d be surprised at how quickly small, unessential expenses can add up. The goal is to improve profit margins without stifling future business growth.
Pro Tip: Find a budgeting method that works for you! If that Excel/Google Sheets works for you, great! But, if you find yourself neglecting it or overwhelmed by how much maintenance is involved - try YNAB! YNAB stands for You Need A Budget, and it is an amazing platform for accountants and non-accountants who want to monitor your business's cash flow.
#3 CREATE CLEAR PAYMENT TERMS.
Copywriters and many other small businesses often work on a project basis, and payment terms can vary. Some clients may have longer payment cycles, causing delays in receiving payment for completed work. This delay can disrupt the business’s cash flow and create challenges in meeting financial obligations. To address this, you should negotiate clear payment terms with clients and consider requesting partial upfront payments or milestone payments to ensure a more steady income.
Psst…Chelsey here! I have my clients sign a contract to ensure I do #3 in my business. But legal stuff isn’t my jam, so I use the templates from Artful Contracts (no affiliate)!
#4 FINANCING.
When your business needs to bring in more money quickly, you may need to lean on outside financing in the form of a bank loan or line of credit. Working capital provides the resources necessary to continue and even expand daily operations. Bringing in additional capital improves cash flow, making it easier to manage the lifeblood of the business and facilitate long-term strategic planning.
But, sadly, applying for financing is not always easy. If your financial statements are not up to date... ya know, to the current year... you may face challenges in getting approved. If you are behind, seek professional help in getting caught up!
To help you get caught up, an accountant can advise on how much cash the business currently has and how much money is needed to sustain operations over a set period of time.
Don’t Get Caught with Poor Cash Flow Management
At the end of the day, effective cash flow management is crucial for the success and sustainability of your small business. As we've discussed, cash flow problems can have serious consequences, including late payments to vendors, overdue rent, and employee paycheck delays. However, by implementing the four key tips we've explored – planning and forecasting, reducing spending, creating clear payment terms, and considering financing – you can take proactive steps to improve your cash flow.
Remember that managing cash flow can be a challenging task, but it's not something you have to face alone. Whether you're a copywriter or a small business owner, seeking professional help, such as the services offered by Tillena Sigler's Bookkeeping, can be a valuable resource to navigate the complexities of cash flow management. So, take the initiative this year to master your cash flow, and with the right strategies and support, you can steer your business toward a more prosperous future.
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Tillena
Tillena is the owner and primary bookkeeper for Tillena Sigler’s Bookkeeping. At Tillena Sigler’s Bookkeeping, we help online coaches and digital marketers refocus on their passion and clients by managing their bookkeeping.