It’s one thing to have enough money to cover daily operating expenses for your small business. It’s another to have a financial cushion that can help you weather economic storms, both expected and unexpected.
Many entrepreneurs struggle to build up a cushion for their small businesses, especially when first starting. Today, let’s look at some tips you can use to ensure you always have a little cash tucked away for a rainy day.
Switch to Paperless
Switching to a paperless office system can save you a lot of money, which you can then funnel into a savings account. How?
When you go paperless, you:
- Spend less money on office supplies, such as paper, ink, postage, and printer equipment.
- Reduce the time it takes to file, organize, and search for documents, which leaves your employees free for more productive tasks.
- Don’t need as much storage space, meaning you can lease smaller and cheaper office space for you and your workers.
On top of that, switching to a paperless office system ensures that you operate as sustainably as possible. Not only can this be a great marketing boost for your brand, but it can also potentially let you take advantage of certain tax breaks.
Practice Good Invoicing
It’s tempting to allow your best customers plenty of time to get back to you when you send them an invoice. Unfortunately, leaving outstanding invoices for too long, means you don’t get to use that money for your business expenses, debt repayments, and other needs.
Instead, you should stick to good invoicing practices, like:
- Having a firm deadline for every invoiced client or customer
- Collecting invoice payments on time (and applying interest for late payments)
- Cutting out clients that are repeatedly late, that don’t respond to invoice requests, or that cause credit card chargebacks
This can take some time to master, but it’ll make a big difference when saving up.
Transfer a Balance to a Better Credit Card
If you use business credit cards for operating expenses, consider transferring their balances to a card with an introductory 0% APR period. Why is this beneficial?
Say you have $2000 in credit card debt with a 17% APR. Well, that means you’ll have to pay much more than $2000 if you just make minimum monthly payments. But if you transfer the money to a 0% APR card, you can only pay down the principal (provided you complete paying it off before the introductory period expires), saving you money on the interest.
Alternatively, consider opting for a business tradeline instead of using a credit card. A business tradeline is a form of credit extended to a business by its vendors or suppliers. In this agreement, the business receives goods or services while agreeing to pay for them at a later date. Since many vendors/suppliers don’t charge any interest if you pay your bills within the payment deadline, a tradeline may be a considerably cheaper option than a credit card and leave you with more money to save.
Use a Cash Back Credit Card
One simple way to generate extra cash for your business is using a cash back credit card. These credit cards pay you back a percentage of the money you spend on business-related expenses, such as office supplies, gas, business trip accommodation, vendor services, etc.
You can then use that cash to cover other expenses, pay off your credit card balance, or increase your savings nest. Considering how much money you spend on your business, cash back credit cards can lead to huge savings over time!
Set Aside Money From Sales
As your business makes money, you should regularly set aside some of that cash and put it into your business coffers. But how much is enough?
In the earliest days of your business’s lifespan, it might only be possible to set aside 1% of all your sales revenue. But as your business grows and you make more income, you can consider upping this to 3%, then 5%, and then even possibly 10% of your monthly income.
The more money you set aside and save, the better prepared you’ll be for the inevitable business emergency, like a recession, your customer base switching, or a fire burning down your building. When disaster strikes but you have enough money set aside from sales, you can rebuild without having to declare bankruptcy or downsizing significantly.
Use a Fee-Free (or Low-Fee) Bank
Let’s face it; recurring banking fees can seriously eat into your bottom line over time. If you want to save money and maximize the size of your financial cushion, you should try to find a no-fee or low-fee bank.
Banks with tons of late fees, sign-up fees, and regular expenses are the banes of small business owners everywhere. If your current bank isn’t giving you what you need, don’t hesitate to jump ship and sign up with another bank instead. You don’t owe any bank your business.
Keep Some Revenue in Cash
While keeping revenue in the bank is a wise idea, it may also be smart to keep some of that revenue in cash. For example, say that you have $20,000 saved up for the proverbial rainy day. What if your bank, for whatever reason, declines to give you the money when you need it?
Because of this possibility, it’s smart to keep some of that money in cash (say, $5000-$10,000) in a personal safe. Having some cash flow in real dollars means you’ll always have that money on hand when you need it, and you won’t have to make an extra stop to recover that emergency funding from another party.
That said, don’t put too much of your revenue into cash. Cash can always be stolen, while money in a savings account can earn interest over time. Most of your savings should be in the bank, just not all of it.
Always Have a Backup Funding Solution
Lastly, you should consider lining up a backup funding solution you can use when times are tough. Even if you have a financial cushion of several thousand dollars, you might need more to cover unexpected business expenses, repair a broken property, or pay debts.
That’s where funding solutions like Gravity Capital come in. Gravity Capital allows you to get the funding you need by working with your credit card processing system. Simply put, you can get quick funding, have money in your account the next business day, and not worry about making monthly payments.
Instead, a percentage of all your daily credit card sales is applied to the funding balance as you make money. This is just one example of how you can have a backup income stream to finance your business operations in an emergency.
As you see, you can always save a bit of cash and ensure you have a financial cushion to fall back on when necessary. By practicing the above strategies, you’ll never hurt for money when you need it most and have to take out an expensive or predatory loan to save your business from sinking.