Cash flow is the most important measure of a business’s financial health. It helps you know how much money is coming in and going out for any given period of time. When your cash flow is positive, it means that you have more money coming in than going out so you have enough cash to finance your company’s operations. When your cash flow is negative, it means the opposite – more money is coming out than coming in.
Although there are many different strategies to improve your business’s cash flow, here are 7 smart strategies that could help you get back on track.
Cash flow is the lifeblood of your company, and it can make or break you. The ability to maintain a positive cash flow is critical to staying afloat and maintaining a successful business. It’s important to pay attention to the signs that your cash flow might be in trouble, so you can prevent a downturn before it happens. Here are some smart strategies for improving your business cash flow.
7 Smart Strategies To Improve Your Business Cash Flow
Business cash flow is a key element of success. When there’s plenty of cash, it’s easier to invest in growth opportunities, finance new projects, and take care of the needs of your employees. But when cash is tight, you have trouble paying your vendors and meeting payroll. This is where business owners need to get creative in order to maintain their cash flow. There are several ways you can make more money or cut costs to improve your cash flow situation. In this article, we’ll explore 7 smart strategies that will help you keep a steady stream of business income flowing into your bank account.
Increase your income
When you’re strapped for cash, the easiest fix is to generate more income. You want to spend your time focusing on generating more revenue and less time worrying about how to cover costs.
One of the best ways to do this is by increasing your prices for a product or service. It might seem counterintuitive, but raising prices can actually result in higher profits. If customers are willing to pay what you’re charging now, they’ll be even more likely to make a purchase when you raise the price.
Another way to increase your income is by making sure you’re billing correctly. Many business owners don’t charge their clients correctly and end up leaving money on the table. And there’s no shortage of simple billing mistakes that are easy to correct. For example, if you have a 15-minute window for phone consultations and you always round up instead of down, then you’re leaving $2 per consultation on the table!
Finally, consider doing some consulting work if it’s outside your core competencies. One hour of consulting can translate into $500-$1000 in additional revenue each month depending on your skillset and expertise.
Control your expenses
One way to improve your business cash flow is to control your expenses. Be smart about how you spend money on office supplies, advertising, and other business costs. This can be done by using discounts for services like printing and web design, negotiating vendor prices, or shopping around for the best deals on whatever it is you need.
Make a budget
To start, you need to make a budget. This will give you a clear picture of your current situation and show where you’re spending too much money. You can take an in-depth look at every line item on your profit and loss statement, including operational costs, real estate expenses, taxes, and more. From there, you can decide which line items to cut back on or reduce.
Another smart strategy is to increase the price of your goods or services. If people are willing to pay more, then it’s time to raise the cost of your goods or services. However, this should be done only after careful consideration because it may result in losing customers who are unwilling to pay that higher price point.
What is a budget?
A budget is a financial plan that outlines a set of goals and how you’ll finance them.
Since the word “budget” can refer to both spending and income, it’s important to keep these two things separate when creating your budget. Your budget should outline what you intend to spend money on in the coming year, but not detail any expected income.
How do you create a budget?
The first step to improving your business cash flow is creating a budget. A budget will help you allocate your money in the most effective way possible, which means you’ll have more left over to invest. Create a monthly budget and allocate funds to specific areas of need. This includes your mortgage, food, utilities, rent/mortgage payments, insurance, credit card debt, fuel costs and more.
You might find that once you create a budget it’s apparent that your money doesn’t go as far as you thought it would–especially if you have high-interest credit card debt or are living paycheck-to-paycheck. You might also find that you’re spending money on things that don’t provide much value for your business (e.g., weekly lattes). By cutting out these unnecessary expenses, you can use the money for more productive purposes that will improve your cash flow situation.
Keep it simple with these tips
It’s easy to get overwhelmed with the sheer volume of information about improving your business cash flow. But a few simple strategies can help you make it happen.
Here are 7 tips that can help you improve your business cash flow situation:
Deal with debt wisely
Debt is a necessary part of business financing. However, debt can be an expensive burden, and it’s important to partner with the best lender and at the right interest rate.
If you’re having trouble with your debt payments, there are a few options you should explore before declaring bankruptcy. For example, if you have collateral (e.g., equipment or real estate), you may be able to get a secured loan or line of credit for much better terms. If your company is about to default on existing loans, many lenders will offer forbearance or restructuring in order to avoid foreclosure and repossession. You might also consider contacting a bankruptcy attorney at this time to determine whether bankruptcy is the best course of action for your situation.
Understand the difference between good and bad debt
One of the first steps to improving your cash fluidity is to understand the difference between good and bad debt. Good debt is usually an investment in your company or a purchase that is an asset. For example, if you purchase equipment for your business, it’s considered an asset and not debt because it will keep generating income for your company. On the other hand, bad debt is typically a personal purchase. For example, if you borrow money to buy a car, that’s considered bad debt because you’ll need to make payments each month until the loan expires. When you have good debt and no bad debt on your balance sheet, that means you’re financially healthy because you have more assets than liabilities on paper.
Do a better job on collections
If you’re not doing a good enough job on collections, you need to change that now. 85 percent of business owners say collecting outstanding invoices is the most effective way to improve cash flow.
Doing a better job on collections might mean getting tough with your customers and making sure they pay what they owe on time. It might also mean having your staff contact clients more often to remind them about outstanding invoices and when payments are due.
Even if clients don’t have the money to pay their invoices, some businesses will give them an extension for the amount due if it’s reasonable and in the interest of the client’s ongoing relationship with the company.
Ask for help
If you’re struggling to keep up with your cash flow, one of the best things you can do is ask for help. This could be from your employees, your vendors, or other people in the industry. When it comes to cash flow, most people are willing to help if they can. There’s no shame in asking for help when you need it!
You also have options like a business line of credit that can help you sustain your current spending. You may have to pay an interest rate for a line of credit, but it may be worth it if you know that the money will be there when you need it.