You already know how vital cash flow is to your operations if you run a business. It would help if you had the cash flow to keep the lights on, pay your employees, and cover material costs. You have to spend money to make money. And the only way you can spend money is if you have a healthy cash flow in your business. Good cash flow has two primary characteristics: it's positive and predictable. Suppose your business gets slowed down by negative cash flow (more money going out of your business than coming in), or you sometimes get tripped up by unexpected cash flow shortages. In that case, you could be in danger of going out of business. Improve cash flow to keep the doors open and free up cash to reinvest and grow your business.
It might seem simple on the surface, but improving cash flow is more than cutting costs and increasing revenue. Yes, most of the time, the difference between positive and negative cash flow does come down to those two factors, but there is more to cash flow than that, and as an owner, you have several options to improve cash flow.
Here are a few ideas that we will go into greater detail along the way.
Shrink the Gap
Ask for money upfront
Discounts are your friend
Stop wasting money
Review your pricing
Review all expenses
Stop reacting and start managing your business. If you aren't, now is the time to start forecasting cash flow . This will help you anticipate and prevent shortages before they happen.
Your cash-flow gap is the time between money going out and coming back in. So delay payables , if possible, and collect receivables as quickly as you can.
Electronic payments will help you shrink your cash-flow gap . When paying bills electronically, you can wait until the day they are due. You are also likely to get paid more quickly by accepting electronic payments.
Ask for a deposit before starting any work , or bill in intervals during a lengthy project will also help shrink the cash-flow gap.
Look for places and times where you can take advantage of discounts for early or cash payments. Seek discounts to help you pay off larger and more expensive projects.
Remember every dollar already invested in your business is worth more than each dollar you earn because you have to spend money to make money , so hold on to as much of it as you can. Use job costing, cost allocation, and unit economics to evaluate and improve every part of your business.
Continuous cash flow shortages are often indicators that a business isn't charging enough. Review your pricing and determine whether or not you are actually charging enough in return for your services.
Consider the value of every dollar that leaves your business and what you are receiving in return. While the happiness of employees is invaluable, do you really need to upgrade every time a new phone is released? Before spending the dough, examine the upgrade capabilities and determine whether or not they will help increase productivity.
As you business scales a heathy cash flow will help your business operate more smoothly resulting in less worry and headache in a potential cash flow emergency. When you are no longer preoccupied on reacting to emergencies you will be able to grow and achieve success.