Improve Your Cash Flow
What exactly is cash flow? It is the movement of funds in and out of your company. Ultimately, cash flow is the lifeline of any small business. A profitable company on paper could end up bankrupt because the cash coming in didn’t compare with the cash going out. Companies that don’t execute strategies related to maintaining good cash flow could land their business in hot water down the road.
While all businesses may ebb and flow in their own way, there are several ways to better manage consistent cash flow as a small business owner. We asked 11 small business professionals to give us their best tips and tricks on how to effectively manage cash flow.
Figure out Your Breakeven Point
Any good business owner should know when their business will become profitable. This will not necessarily affect cash flow, but it will give an early goal to strive for and a target needed for projecting future cash flow. Negative cash flow and negative profits make for a depressing combination, that is why knowing your breakeven point is so important. Focus your efforts on managing your cash flow with an eye toward reaching your profit goals!
- Rex Murphy, Montauk Services
Company Line of Credit
A successful protection strategy against cash flow concerns is a company line of credit. If you use them as leverage, you will be eligible to get a line of credit with a portion of the accounts receivable or inventory.
- Eliza Nimmich, Tutor the People
Updated Account System
To manage cash flow, you must have an accounting system in place that is kept current, meaning data is processed frequently to be able to determine accounts payable aging, accounts receivable aging, liabilities, and actual cash in hand. Reviewing these balances regularly can help you in determining your business cash flow, trends, and opportunities.
- Carolina Aponte, Caja Holdings
Charge Customers on a Subscription-Based Method
Many small businesses start out with transactional or one-off solutions. Look for ways to provide subscription-based solutions to your customers. This provides you with a steady, monthly recurring revenue stream that can help you manage your cash flow better.
- Nicole Spracale, Coaching and Consulting
Set Your Price and Fees Appropriately
First off, be careful in setting your pricing/fees. If you offer a service that your competitors do not, don't hesitate to price your services at a premium. Second, use digital invoicing with online credit card payment to assure quick payment. The slight loss to a credit card fee is more than offset by quicker collection. Third, obtain a commercial line of credit from your bank to fill in cash needs during slower times of selling.
- Jeff Williams, Bizstarters
Trust a Financial Expert
Trust a financial expert to manage your cash flow. As a former accountant, there’s nothing I would rather do than jump into some spreadsheets and analyze the business. But as a business owner, delegating this responsibility to a bookkeeper is absolutely necessary. Not only does the decision to delegate free up time, but a financial expert can introduce new perspectives that you wouldn’t have otherwise as a CEO. Do yourself a favor and hire a bookkeeper on an hourly basis to do most of the heavy lifting. Then, as an executive, get the summary and make the right decisions.
- Brett Farmiloe, Markitors
Track and Analyze Everything
My best tip on managing cash flow is to track and analyze everything. Oftentimes, you'll discover that you may not need a certain subscription or tool. Or, instead of hiring another employee, you might be able to automate a process. The most important thing is to keep asking yourself the hard questions about any major purchase. For context, I run a SaaS company where I haven't taken on outside investors. As a result, I have needed to be creative to manage my cash flow on a tight budget.
- Axel DeAngelis, NameBounce
Reconsider Annual Subscription Services
Evaluate any subscription services you have annually (if not more frequently). You may have services providing duplicate features or even providing a service you don't need any longer. Put a block on your calendar and go over the bank statement to see what's been paid for and make sure it's something you still need.
- Peter Adams, Sol Minion Development
Stay On Top of Your Invoices
There are some great small tips out there that can help you manage your cash flow more successfully. As a financial journalist, these types have been tried and tested at my company, ready for me to report them. Firstly, you need to be monitoring your cash flow regularly, and this can be a way that suits you. As long as there is a system in place that people can understand, that is all that matters. You can also help your cash flow to be more responsible by cutting costs where things are unnecessary. Staying on top of invoices can also be beneficial. Nothing should stop your invoicing, regardless of if you need to travel or conduct other business at the same time.
- Ethan Taub, Loanry
Assess Risks Often
Assessing your situation often is a must. You must constantly be asking yourself if you, as a business, can financially manage to make a certain payment without any risks. If there is no risk, you should try your best to be paying in advance as much as possible. If there are any risks, even if they are minimal, you should assess whether or not you are financially capable of taking the payment on. Making sure you can pay everything off either on time or early can ensure that you will see your profits rather than waving them goodbye when you have things to pay off.
- Chane Steiner, Crediful
Establish a Protocol When Cash Flow Drops
Sometimes, small business owners experience tremendous discrepancies in their expected cash projections with actual cash flows. When this happens, many find it difficult to budget their finances because they failed to consider this scenario.
Smart business owners anticipate bad situations and cash flow drops are one of them. One way to address cash flow drops is to invest in a cash flow management tool. A cash flow management tool makes it easier for business owners to track all incoming and outflowing cash flow. Doing so makes it easier to make intelligent budget decisions with a reliable tool that tracks finances.
- Yaniv Masjedi, Nextiva
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Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.