All businesses can generate revenue, however not all businesses are profitable. Yes, generating
revenue is important to all businesses, however the profitability of a business indicates the
health of the business—now, that’s vital. Gross revenue is the leading indicator; however, profits
(net income) are a very important lagging indicator, it’s what your business gets to pocket,
reinvest, or save for future ventures. Profits are what your business has left over after paying
all your business expenses.
GROSS REVENUE – ALL EXPENSES = PROFITS
Too much emphasis is placed on gross revenue and not enough focus is placed on net profits. Here’s
why net profits/net income is important. If your business grossed $1 million in a year and your
total expenses were $990,000, your business’s net profit/net income for that year was $10,000. Your
profit margin for the year was one percent (1%), which means your business kept one cent of every
revenue dollar earned. So, let me ask you, if a business grosses a million dollars a year and its
total expenses are $990,000, is it a healthy million dollar business? Well, we can debate this
later.
So, let us increase your profits by improving your cash flow. There are five business financial
statements that I recommend you monitor frequently: Balance Sheet, Income Statement, Cash Flow
Statement, Aging Receivables, and Cash Status Report. Let’s focus on your Cash Flow statement. Your
Cash Flow statement is the summary of your balance sheet and income statement. Cash flow is the
“flow” of cash in and out of your business. Your cash flow statement is how you monitor your
business’s account receivables and account payables, or better yet, money owed you and money you
owe. I am sharing ways to improve your cash flow or increase your profits; however, I strongly
encourage you discuss your financial moves with your Accountant,
CPA, or CFO, and in some cases your Attorney.
How to improve your business’s cash flow (or increase your profits)?
Here are some tips to consider:
1) Reduce expenses. Monitor and manage expenses. Address hidden expenses. Address recurring
expenses.
2) Periodically, do price comparisons on all your expenses to make sure you are getting the best
price (including your insurances, utilities, subscriptions, memberships, travel etc.).
3) Collect outstanding receivables, money owed to you, quicker.
a. Offer incentives to pay early – “prompt pay” discounts.
b. Charge interest on overdue payments.
4) Manage outstanding receivables to prevent aging. Establish, monitor, and act on your Aging
Receivables Report, if applicable.
5) Sell more products and services. Seems obvious, however, be careful not to spend more because
you are selling more.
6) Establish loyalty programs to increase repeat businesses and referrals, if applicable.
7) Increase recurring revenue streams (contracts, subscriptions, passive income).
8) Ask for discounts on your purchases for the business (Goods and Services).
9) Do not pay late fees, ask for them to be waived.
10) Eliminate debt as much as possible.
11) Establish and maintain an operating reserve to cover your monthly expenses. Initially start
out with 3 to 6 weeks of reserve, graduating to 3 to 6 months —maintain this posture until you
stabilize your cash flow.
12) Audit your Pricing model. Are your prices competitive and are they covering your costs? Do
you need to increase prices?
13) Monitor your Balance Sheet, Income Statement and Cash Flow Statements, at a minimum monthly
so that you can address any anomalies or potential shortfalls in a timely manner.
14) Monitor and control your inventory cost, if applicable.
15) Improve internal controls, in other words, control your spending
16) Increase your equity in the business via sweat equity or bootstrapping.
17) Reduce Labor costs, if practical or applicable.
18) Get a line of credit.
19) Get a credit card with 0% annual fee – if used, pay full balance within 30 days, do not
incur interest payments when feasible.
20) Implement a short-term debt process. Get a short-term loan or credit card. (Caution).
Renting money is expensive!
21) Get investors, but do not sell your control of your business.
22) Sell surplus inventory or liquidate some assets or sell or lease obsolete equipment, if
applicable.
23) Establish and maintain supplier agreements with your major suppliers– establish a line of
credit with suppliers or manufacturers. Get volume discounts.
24) Negotiate longer payment terms with your creditors, however do not offer this to your
clients. The goal is to get paid quicker to improve your cash flow.
25) Audit the value of all retainer agreements and adjust or eliminate them as needed.
26) Hire an Accountant or CPA. Mind your expenses when seeking out these needed services.
27) Hire a CFO. Mind your expenses when seeking out these needed services.
28) Leverage technology for your bookkeeping needs and/or hire a bookkeeper to ensure accuracy,
accessibility, and auditable financial records.
29) CAUTION: Sell your receivables (this is “factoring”). Seek the advice of your CPA and
Attorney before you act on this option.
30) Win grants to infuse cash in your business.
31) Crowdfund to scale or infuse cash in your business for special programs, projects, or
initiative, if appliable.
To improve your cash flow or increase your profits, manage your business by the numbers, adopt new
habits and rituals to ensure your business is fiscally sound and healthy. Want to learn more about
managing your books by the numbers, consult your accountant/CPA/CFO, get a business/accountability coach, and check out QuickBooks YouTube channel. There are numerous free resources to help you with managing your business finances. Need additional help with managing your business finances, seek out free
resources, coaching and consulting from the Small Business Administration (SBA) and its partners
-- SCORE.org, Small Business Development Center (SBDC), Women’s Business Centers (WBC) or Veterans
Business Outreach Center (website:
https://www.sba.gov/business-guide/manage-your-business/manage-your-
finances#section-header-8).
