If you are one of those proud entrepreneurs who has worked their heart out to establish their business each day, every day, then you must be familiar with the struggle we will address in this article.
It takes years to establish something like what you already have. Not only does it take immense courage to leave a comfortable job, it also requires determination and perseverance to start something of your own.
The hope of it becoming a brand someday can surely keep you going. Starting a business comes with a lot of challenges and hardships, including the added chore of tax preparation for entrepreneurs. It isn’t an easy accomplishment. However, with the right tricks and strategies, anything can be brought to fruition.
As dreamy as entrepreneurship may seem, grey clouds in the sunny sky are too frequent in this walk of life. The worst of all scenarios that can happen to your business undoubtedly is a cash crunch. In fact, according to a study, 82% of business failures can be attributed to poor cash flow management.
When your sales projections end up being lower than anticipated or when a customer doesn’t pay on time, that can put a major pinch on your ability to cover day-to-day expenses.
If you employ some of the practical and effective strategies we delve into next, however, no cash crunch will pull you down. The right ways to navigate a temporary cash shortfall can help put your business back in the black ASAP. Are you intrigued and want to know more? Please read further.
Vet Clients Carefully
Making sales surely is an enjoyable task to conquer. Yet, taking a leap of faith too soon is not the right choice to make, especially when you are the owner of a small business. Closing a deal is only beneficial to your business if you can collect in a reasonable period the money you subsequently earn.
Most providers of accounting and income tax services for self-employed recommend you work on a small project with a new client first, and then build from there.
This would help you test how quickly the new client pays you. If someone takes 90 days or more to clear an invoice of, say, $500, then imagine how long it would take them to pay on a $20,000 project. These are practical things that must be thought out before plunging into a relationship with a new client.
Push Back Payments
This is one of the most defensive measures to take when a cash crunch strikes. Delaying some of your recurring payments, if you can, can help you survive the crunch in a more graceful manner. We understand that you can’t put off paying your utility bills or rent, but the best thing you can do in times like those is to negotiate an extension of your due date with some of your suppliers.
They should be willing to cut you some slack if you have a history of paying them on time. They might let you hold off on making payment for a few extra days, weeks even, until you have sufficient cash.
Put Any Nonessential Spending on Hold
When you find yourself in a tight spot financially, you should take a closer look at what you have been spending money on. You would want to examine your expenses to see if there is anything you can put on hold or cut out altogether. We illustrate this as follows: if sales go down abruptly, then you could opt to reduce your weekly or monthly inventory order.
This can be a pretty good option. Your next option could be to drop recurring subscription services. Ultimately, the more you manage to trim, the more money you are putting back into your cash flow. You could even consult with professional income tax services for start-ups. They are sure to help you with your potential tax deductions.
Re-Examine Your Pricing Structure
When you are in a cash-flow jam, raising prices may be a necessary part of moving your business back to success. Yet, the one thing you would not want to do is to raise your prices arbitrarily. So, evaluate how much you are spending on supplies and directly connected expenses, and compare that to what you are charging. If you feel like it is too little, then you can always raise your prices.
First, you need to ask yourself a few questions such as, “Has it been a while since I increased my prices?” and “How do my prices measure up against what my competitors are charging?” React according to the answers to these questions. Increase your prices after having examined your pricing structure.
Finish Projects on Time
You wouldn’t want to get into a situation where you have a lot of projects that are in the middle of completion and, as a result, you cannot submit invoices to many clients. Look for ways to bring as many projects as possible to completion. The faster you finish your projects, the sooner you can send out an invoice to your customers.
Stay on Top of Invoicing
When you send out an invoice, the clock starts on offering 30-day payment terms to your client. If you tend to wait a week or two after completing a project to invoice, then you are most likely postponing the day you get paid. Even if you are really busy, you ought to set aside at least an hour or two every week to submit invoices to clients.
This will prevent you from falling behind on collection. If you don’t have time at all to do this, then hiring a professional bookkeeper or accountant is the best decision you can make in order to get paid. If you are a proud owner of a small business, then you should not require more than a few hours of help per month.
Sometimes the best thing you can do to collect payment from clients is… follow-up! If there are numerous unpaid invoices bothering you, then you need to make it a habit to always ask clients for payment. Sometimes, it happens that invoices get lost in a client’s inbox.
Lack of payment or slow payment many times isn’t intentional. Anyway, you cannot afford to have either if you are going through a cash crunch. That is why they say following up with clients is an essential part of running a small business.
If these tricks are a bit too much for you to manage, then you must hire professional accountants. They can also help prepare your income taxes for freelance workers. Trust a reliable referral source and hire the right skilled accountant(s) for your business.
Basil Agrocostea, CPA has been serving creative entrepreneurs as an accountant for over ten years. He prepares hundreds of tax returns for freelancers every year. If you are looking for someone who can keep good records of your business transactions, then consider him and his growing national practice, Agro Accounting CPA.