To set up a profitable business, you must maintain a positive cash flow so that your business will meet its goals. Having a positive cash flow means that your business is bringing more money in than it is spending. If you do not maintain a positive cash flow, you will fall behind your business goals and have trouble qualifying for financing if needed. Today we will be sharing the best tips to make sure you sustain a positive cash flow.
Track Your Cash Flow
The first step to having a positive cash flow is to set up a system in which you can monitor the cash that is coming in and out of your business. Begin by listing all the cash flow (including accounts receivable and bank account balances) and then subtract the cash outflow (including costs you paid, debt repayments, and investments). A positive number means you have a positive cash flow, a negative number means you have a negative cash flow.
You can track your expenses by investing in an accounting software which will give you real-time data of how much you are spending on expenses. This will allow you to make better business decisions by seeing what you need to cut back on or find a cheaper alternative.
There are three types of cash flow:
- Operating transactions – paying wages, expenses, buying materials, etc.
- Investment activities – transactions for property, plant, and equipment.
- Financing – borrowing money and repaying loans.
Send Out Invoices
Customers will not pay until you send out an invoice. So do not wait until the end of the week or the end of the month. Be sure to stay on top of the clients who owe you money and do not send late invoices.
If you charge a penalty for late payments, customers will be more likely to make their payments on time to avoid the fees. Consider charging late penalties to those who do not pay on time.
Boost Cash Inflow When Possible
To keep your business from falling into debt, strive to increase your cash inflow. A few ways you can do this is by:
- Raising prices: make sure you do market research beforehand to ensure that you will not be turning away customers or overcharging them.
- Require a deposit: consider asking for deposits or an advance payment on large orders to make sure that you have at least some of the money upfront.
- Open a high-interest checking account: keep your funds in an interest-earning checking account so your money grows over time.
Not only do you need to pay attention to the revenue, but expenses too. If you can somehow lower your expenses, this will also help you keep a positive cash flow. If you do not negotiate with your vendors already, try doing so and you might find that you will be able to get a discount or 30-day terms at no extra cost. You may even be able to take advantage of bulk ordering and rates. If you have a good relationship with your vendors, you are more likely to achieve your terms.
Implementing systems in your business can improve your productivity and boost your cash flow. If you can get more work done with the staff you have, you can focus on bringing additional revenue in. Think about the work that you can do efficiently and see if you can streamline the workflow to free up the staff for other tasks
The Bottom Line
Cash flow management is necessary for any business. By applying the above tips to your business, you can help maintain a positive and healthy cash flow for your business.