Jenna is the sole owner of Jenna Designs. The 34-year-old started her business four years ago, after a successful career designing clothes for a major label.
Jenna loves the freedom and flexibility that running her own business brings. And she also enjoys the many challenges she faces. There’s the creative challenge of designing clothes that will appeal to working women, the business challenge of starting something from scratch, and the personal challenge of combining a business and a life.
However, one challenge that she’s having a more difficult time with is maintaining a healthy cash flow.
In this article, we look at Jenna’s situation and show how, with a few small steps, she can boost her cash flow.
Understanding Jenna’s business
As is common with many start-ups, Jenna’s business lost money in its first few years of operation. The good news is that she posted a profit for the first time this past year and was even able to draw some income for herself.
Despite reaching this milestone, the lack of healthy cash flow has made it difficult to finance her expansion plans. Jenna made an appointment to see her bank’s small business specialist to see what could be done. He suggested they use an online financial diagnostic tool called “Blueprint for business.” The Blueprint for business process helps identify key areas where a few small changes can make a real difference to the cash flow and bottom line of a business.
All Jenna had to do was bring in two years’ of her company’s financials (balance sheets and income statements), identify her goals (boost her cash flow and use it to help grow the business), and answer a few questions related to her receivables and payables. After inputting her information into the online tool, they were ready to go.
Jenna and her small business specialist explored a number of “what if” scenarios. These scenarios showed the potential cumulative impact the strategies suggested by Blueprint for business could have on her bottom line and cash flow.
For instance, by paying one-quarter of her suppliers by credit card, Jenna’s cash flow could increase by $1,900.
Here are some of the other strategies and best practices that were suggested by the Blueprint for business tool.
Speed up receivables. Competition permitting, try reducing your terms of payment to 10 days, or better still to “on receipt” of goods. Consider offering a small discount (1% or 2%) to encourage prompt payment. Depositing cheques on the day you receive them is the best practice.
Jenna’s situation: By reducing her collection time by just five days, Jenna could see a noticeable boost in her cash flow position.
Make invoicing a top priority. Same-day or next-day invoicing is the best practice. Set aside time every business day for billing. Consider emailing invoices as a supplement to regular mail. Contact habitually late-paying customers on a regular basis.
Open a merchant services account. Receive payment quicker by encouraging payment by credit or debit card. This allows you to receive next-day value for your sales and services, without the need to handle cheques and make deposits.
Use your business credit card. Consider using your business credit card to pay suppliers and make purchases. Learn about your card’s grace period, and take advantage of it — you may have up to 26 days after receiving your statement to make the payment without incurring interest charges. Some cards also come with cash-back features.
Jenna’s situation: By paying one-quarter of her suppliers by credit card — and taking advantage of her card’s grace period, Jenna’s cash flow could improve by $1,900.
Put your cash to use. If you buy goods on a just-in-time basis and find yourself with extra cash, put it to use by investing in a short-term instrument, such as a high-interest savings account for business, or paying down your line of credit.
Cash savings tip. A high-interest savings account for business allows you to earn a competitive rate of interest on your cash on hand and the funds are accessible whenever you need them.
Invest in your business. Any steps you can take to build your business, such as training staff or boosting your marketing, can help improve cash flow.
Jenna’s situation: By increasing her seasonal marketing efforts, Jenna could increase her revenues by $5,800. These are just some of the ways that the Blueprint for business tool was able to help Jenna set achievable targets and implement workable solutions. Your Scotia business banker can help your business take advantage of this innovative online tool.
Article originally featured on the website: Get Growing for Business. Find additional information and tools relevant to your business.