Successful businesses get where they’re at by effectively managing their cash flow. New or old, if your business can’t consistently stay in the black, they’ll end up in the graveyard with the rest of the businesses that couldn’t figure it out. Once you have a grip on understanding and accurately measuring your cash flow the next step is figuring ways of improving your cash flow. While there are many different approaches you can take, these are five tips that can help you on your way.
1. Create an actionable plan
While this seems like a pretty obvious thing to do, it is often the most overlooked. By creating a plan that you can put into action, this will help you meet your company’s cash flow goals sooner. This plan should include specific goals for how you want to implement cash flow management strategies along with a breakdown of the different categories for your actions such as customers and suppliers. This will aid in managing cash flow by each area rather than tackling the big-picture cash flow of the company. In many instances, you’ll find that one category might be the biggest issue with your cash flow, like late payments from customers.
2. Plan for future cash needs
A good rule of thumb is to have a rolling 12-month forecast of your company’s cash flow to serve as a benchmark. To start out, use Excel or another spreadsheet program where you can keep track of all the cash coming into your company as well as the cash outflows such as payroll and other expenses on a weekly basis. By doing this, you will be able to better estimate your future cash flow needs on a longer-term basis. While the business’s needs may change slightly from month to month, it is still important to have a general guide of where your company should be in terms of cash flow. This can also help you set goals for your cash flow by building a forecast based on your past cash flows.
3. Create incentives to get paid quicker
There is no “quick fix” for improving your company’s cash flow but adding incentives for customers to pay you earlier is something that can increase your cash flow rather quickly. By putting incentives in place, such as giving a small discount to customers who pay earlier than the due date, will help your company not only get paid on time but can also get you paid earlier. The opposite approach can work to your advantage as well. Tacking on a late fee or interest for customers who don’t pay on time can also help you avoid late payments. Finding the right combination of buttons to push to motivate your clients to pay can be a powerful tool in improving your cash flow.
4. Review company expenses
By looking at your current company expenses and reviewing them, you can potentially eliminate those expenses that aren’t essential to running your company. This can mean taking a hard look at your overhead expenses and staff and making decisions on what’s truly essential and what isn’t. This can include everything from moving to lower tiers of service (internet provider, phone plans, etc.) to changing the location of your business to something that’s smaller and/or more affordable.
5. Use technology to your advantage
From software to apps to pre-built spreadsheets there are an almost limitless amount of technologies out there to help you improve your cash flow. Keep an open mind to different payment management systems and trying them out to see what integrates best into your business processes. An inexpensive invoicing app like JobFLEX can be an excellent solution for smaller businesses.
Never stop looking for ways to improve
While these are just a few of the tips your company can utilize for improving cash flow, they provide a good starting point for when it comes to improving your cash flow. Even if your company already has a positive cash flow, it’s always worth looking for ways to take your cash flow to the next level.