It’s hard doing everything for your small business, especially making time to sit down and do the books. Larger companies have an advantage in this area. They have the capital to hire financial experts that manage their financial efficiency. Here are 7 practices to borrow from bigger companies to manage your own business’s finances.
1. Renegotiate your payment terms. 30 days is no longer the universal standard. Extend your payment terms to 60 or 90 days. Try to settle these terms beforehand, avoid breaking payment agreements. However, if cash flow is a major issue, communicate with your vendor that you’re extending payment terms unilaterally by 15 days and stay within those terms. Most vendors will be accepting of this.
2. Get paid upfront. Larger companies aren’t known for extending credit to customers. As a small business owner, you deal with people on a more personal level in the day to day. Just remember that credit is a privilege and extending it is risky for most everyone these days. Make sure you accept credit cards, electronic transfers or electronic checks so there are no excuses for not making a payment up front.
3. Follow up on invoices. Larger companies most always have a follow-up plan after sending an invoice. A call or an email to confirm your invoice was received and when payment is to be expected. If the payment doesn’t arrive when scheduled, make another reminder call. If you’re not necessarily good with keeping track of accounts, account apps can help with reminders for you. Most people want to pay their bills on time, sometimes they can just get lost in the shuffle of everyday business. Follow-up action almost always increases cash flow.
4. Extend your cash flow by paying with a credit card. Paying an invoice with your company credit card when it is due (about 30 to 90 day) will give you an additional 30 days of cash flow. This only works if the credit card bill is paid monthly and not used as a long-term loan.
5. Bill on time. At minimum keep a monthly billing schedule. This will help keep your cash flowing. Don’t wait until the end of the month to bill, either.
6. Move to a different state. All states are not equal when it comes to corporate taxes. Lots of larger companies move to states where these are the lowest. The highest tax burdens are found in Tennessee, Arizona and Louisiana.
7. Careful accounting tricks. With the advice of an accountant, you can learn some tax strategies that large corporations use.
— Treat certain operating costs as investments.
— Change the depreciation policy.
— Sell equipment like computers or machines (fixed assets) and recognize the income as normal sales.
— Recognize the income of a long-term contract in one lump sum rather than when it will actually be realized.
