Does your business have a long sales cycle? When you face wide gaps between incoming payments, ensuring you have enough cash to cover your expenses can be a challenge. HGTV Canada’s Bryan and Sarah Baeumler are no strangers to managing through cash flow crunches and have weighed in to offer their advice to make it through them when trying to grow a business.
Here are five ways to manage your cash flow to help keep your business running smoothly.
1. Take Deposits or Schedule Interim Payments
If you’re delivering a product or service that takes time to develop, waiting until the job is complete before collecting payment could leave you short of funds while the work is in progress.
Taking an initial deposit, and/or scheduling payments throughout the course of the project, can help you cover your business expenses in the interim.
“Talk to your customers,” Bryan suggests, “about taking larger deposits or progress payments to provide you with the cash flow that you need.”
Requesting up to 50 percent is reasonable, particularly if it’s a custom product or unique service specifically designed for a particular client.
Learn how to get paid faster and speed up the cash cycle with this infographic.
2. Motivate Your Clients to Pay You Faster
Following a long sales cycle, delayed payments can exacerbate your cash flow challenges. If your clients take more than 60 days to pay you right now, consider offering incentives for paying sooner. An early payment discount of 2-3 percent if payment is received within 10 days (an industry standard), may save your customers money and get you cash in hand faster.
3. Talk to Your Suppliers about Their Payment Terms
While the first strategies help you manage money coming in, there are two sides to the cash flow story. Managing money going out may also ease cash crunches by letting you hold onto the cash you have a little longer. While some expenses and deadlines are fixed (rent, utilities, taxes, etc.), the timelines for paying your supplier costs may be more flexible.
Seeking out alternative suppliers to help your cash flow is one of six major ways to grow your profits and opportunities. Read more about these solutions with this white paper.
“Talk to your suppliers about what your payment terms are, and perhaps you can ask to increase the payment terms from thirty to sixty days to help with your cash flow,” suggests Sarah. Bryan adds, “If you’re a valued customer of theirs, they know business will be coming back … and they’ll extend their terms a little bit.”
It’s a good idea to start talking to your suppliers before you have an urgent request — so make sure you’re on good terms, are nurturing the relationship, and that you have a positive ongoing dialogue. And if there is an opportunity to make the deal mutually beneficial (e.g., longer payment terms might mean larger orders) then all the better for both of you.
4. Use Online Tools to Simplify Things
If you’re having difficulty getting invoices out the door, or if accepting payments is a sticky point with your clients, easy-to-use invoicing and accounting software can shave hours off your current processes and help you get paid faster. Today’s best software can help you create invoices quickly, generate recurring invoices, and give your clients payment options — such as by credit card or direct deposit.
5. Find a Financing Solution That Fits
There are a number of financing solutions available that may help bridge a cash flow gap — the key is to find the one that matches your situation.
For instance, an operating line of credit can cover temporary cash crunches and let you cover expenses while you wait for payments to come in. A term loan, on the other hand, can help you cover a larger, one-time expense that you need to fund, but don’t have the cash on hand to take care of it. It’s a good idea to review the various options available or to speak with a small business advisor who can help you identify the right solution for your business.
Bryan recommends sitting down with your advisor — before a cash crunch hits — to figure out exactly what you can put together as far as financing goes.
Watch the advice Bryan and Sarah offer Mike, a business owner in the trades industry, who deals with a sales cycle of up to eight months.
See how RBC can help you manage your cash flow, with a range of tools and services built for business owners like you.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.