Revenues help a business grow, while profitability can generate expansion potential. As a business owner, those are your strategic goals. However, within that vision of what you want to become, cash flow plays a critical role. You need to maintain a steady stream of available money to cover expenses, the unexpected, and emerging opportunities. Without that cash flow, there's nothing to move you forward, stalling out your business and, sometimes, even shutting it down.
While you may think that you can't control just how much money comes, stays, and goes from your business, there are numerous strategies that you can implement to do just that. Here are some of the best strategies.
Speeding Cash In-Flows
If you have a large project or order from customers, you can improve cash flow by asking for a deposit upfront. This can help cash flow by providing you with the funds while you work on that project or order. This is much better for cash flow than having to wait to collect all the money weeks or months down the line. Plus, having some funds upfront helps you to pay any vendors or team members involved in that project instead of relying on credit or waiting to pay them.
Similarly, you can also dictate payment terms of these types of jobs where you get a certain percentage at a certain time over the life of the project. This strategy keeps the cash flowing in at certain points to maintain your balance.
Additionally, use positive reinforcement like discounts for paying invoices early or resort to negative reinforcement like penalties if invoices are paid late. You can also provide online invoicing with a direct link to a range of payment methods. These strategies all make it easier for the person paying you to get their part of the deal done at a much faster rate. In return, your cash flow increases quickly.
Look for business accounts that earn you interest on what you put into them. While your business checking account won't do that for you, it is possible to take some of the proceeds and keep it in a savings account or certificate of deposit. That way, you are earning more money on the revenues, which definitely will boost cash flow. Although other types of accounts have even higher interest rates like long-term certificates of deposit, this won't keep the cash liquid to make it count toward cash flow. Stick to those accounts where you can grab the money at any time without a penalty or waiting period.
Another way to add cash is to look for equipment or inventory that is not being used. It's basically stagnating cash. That's why you should find ways to offload it and get the funds. If it's inventory you've held for longer than a year, then this is the time to let it go.
Look for ways to add incremental revenue streams, like subscription sales or sales across other channels. Depending on what you offer, you can add a layaway program that also incentivizes customers to buy more and do so early.
Shrink and Slow Cash Outflows
The other approach to improving cash flow is reducing how much money leaves your business and ensure you slow this outflow as much as possible without being late on your own obligations. Look at due dates on everything, including payroll, and determine how you might move these around to spread out the cash outflow to maintain more within your account. Renegotiate when you pay vendors to see how far you can stretch those payments.
Determine what type of expenses you can reduce. This includes fixing equipment you have rather than just replacing it. Or, you might consider buying used equipment rather than new. Another option is to barter for items. Also, leverage the sharing economy where you split the cost among many and share the equipment between you. This might even involve using a co-working space or shared office.
Of course, make sure that this also doesn't lead to more downtime for your business because then you are defeating the purpose by reducing your revenue opportunities. And, don't feel that you have to just invest in new technology because everyone else is doing so. Assess whether you actually need it now or it can wait until cash flow is at an optimum level before you buy it.
Another way to keep the costs down is to use cash rather than credit. You can often negotiate a better deal on a product or service. Plus, you won't get hit with the added expense of interest payments and service fees. Those you are buying from want cash flow just as much as you do, so they will most likely respond positively to your use of cash for a discount.
Stay Financially Flexible
The better cash flow you have, the more control you have over your business and the opportunities presented to it. You need to stay limber to make quick moves in today's business environment. Without that cash flow, this flexibility may not be possible. Follow these inflow, outflow, and additions to your cash and you'll be able to have more options and security for your business to continue growing.