Tips to Avoid a Cash Flow Crunch in Your Service-Based Business

You are the proud owner of a lawn service. You and your crew of five seem to be working like dogs to provide weekly lawn care and maintenance to over 60 clients, both residential and corporate. Despite all the hard work, you can barely keep up with the business expenses. If one of the two trucks you use were to break down, you’d have to cover the repair with your credit card, and the subsequent loss of business would be devastating. If only you had enough cash on hand.  The following tips will help you prevent the common cash flow crunch that small service-based businesses often encounter during daily operations or unexpected events.

1. Build an Emergency Fund

Preferably before you even start your business, begin saving money in an emergency fund. You should contribute to this fund regularly as you build your service-based business. It isn’t pleasant to think about, but events beyond your control will often crop up. If there is an unexpected event during which harm is done to either your employees or equipment, you’ll be grateful to have emergency cash on hand to handle the situation immediately.

2. Stagger Invoice Due Dates

Never collect all monies due from your clients at the end of the month. Negotiate with your clients so that at least half of them pay on the 15^th of the month. That way, you have cash coming in twice a month. Ideally, once you have enough clients, expand this payment schedule so that you have invoices coming due and paid each week. Also, adjust your invoice payment schedule as needed to provide enough cash to pay your business expenses as they come due.

3. Charge Late Payment Fees

In this economy, people are having trouble paying bills on time, but you have to pay your employees and feed your family, too. Make sure your clients know up front that if they can’t pay you on the agreed upon date, they will be charged a late fee based on the number of days that their payment is late. You shouldn’t make the fee unreasonably expensive. On the other hand, if the fee is too minimal, there is no incentive to pay you promptly. It’s best to find out what other businesses in your area charge for late payments and stay within the same price range.

4. Build an Equipment Maintenance Fund

If your business relies on vehicles and equipment during daily operations, you will need to build a maintenance fund. This is because all vehicles and equipment have a finite amount of time before they need to be serviced or replaced. Business vehicles and equipment have an even shorter time period before repair or replacement is needed since they are often used on a continual basis. In addition, always stagger the purchases of business vehicles so your entire fleet won’t need repair or replacement at the same time. This will help keep your maintenance fund from getting depleted all at once.

Business expenses and unexpected events are unavoidable when you own a service-based business. You need to build emergency and maintenance funds, stagger invoice due dates and charge late fees. Following these tips can help you avoid the cash flow crunch that so often cripples small service-based businesses.