Cash flow is the lifeblood of your business, but it is also tricky. Many businesses mistakenly believe that it is equivalent to their revenues—that is, if their sales are good, their cash flow must also be stable.
It doesn’t work that way all the time. Sometimes your cash flow can be in a bad shape even if you’re earning lots of money. How do you make sure that it stays in the black?
1. Keep an Eye on Your Receivables
Your best customers can help you turn sales into cash quickly by paying on time, but not every customer will follow that path. Late payment from a client or a slow turnaround from a supplier can add up quickly, especially when it comes to large orders or when you have a high concentration of customers who don’t always pay promptly.
How to stay on top of it: Establish a lead time for your customers and suppliers and stick to it. This means shipping or delivering the product or service well before the agreed-upon time frame ends. If necessary, offer a discount or other incentive for early payment to encourage people to get the ball rolling.
2. Look Under Every Rock for Additional Revenue Streams
Running a business can be stressful enough without worrying about where your next dollar is going to come from. That’s why tapping into multiple revenue streams is the best way to boost cash flow. Here are just a few ideas for turning your business into the next cash cow:
- Use a virtual assistant. If you’re doing everything yourself, you should consider hiring someone to lighten your load, and that doesn’t need to be expensive. A virtual assistant can handle one or more administrative tasks such as data entry or social media promotion regularly. Be sure to find an honest and reliable candidate who understands confidentiality and other considerations for working with small businesses before you hand over any work.
- Outsource website development and maintenance. Web designers don’t come cheap, but outsourcing this task frees up time for you to focus on your core competencies while benefiting from professional results. Make sure your designer is willing to work within your budget and timeline (and communicate clearly about what those are).
- Do telecommuting or remote work. Some business owners might not see this as an option, but it doesn’t need to be time-consuming—or messy! You could benefit from virtual workers who can complete a project at their convenience.
3. Be Aware of the Chart of Accounts
Most business owners have a standard chart of accounts that all financial reports use, but that’s just the beginning! For example, if you use QuickBooks, your chart may include fields for ease in creating income statements by payroll item as well as monthly budgets based on employee hours worked. This way, you can easily track labor expenses against your projections.
How to stay on top of it: The more specific you can be, the better. Even starting with basic categories like income and expenses will help you monitor your progress throughout the month or year (whichever time frame makes sense for your business). QuickBooks Self-Employed is a good option for small businesses because it includes features like mileage tracking and deductions for home office use!
4. Save Before You Spend
Many small business owners are tempted to take out loans anytime there’s a cash flow problem, but borrowing money isn’t always a solution! If you don’t have an emergency fund in place, now is a great time to start saving. You can use a high-yield savings account to stash your cash until you’re ready to invest. The interest rates are much higher than traditional checking accounts.
How to stay on top of it: Allocate a certain percentage from each paycheck into your savings account and then review the balance regularly. Make sure that this figure increases at least as much as your monthly earnings so there’s always money in reserve when you need it! You can also save money by letting go of your idle assets. They still cost you because of maintenance and depreciation, but they are not giving you any return. Reliable field inspection companies can help you identify non-performing equipment and supplies.
6. Do a Cash Flow Analysis
If you have several income streams or if your business fluctuates throughout the year, monthly reports become less useful over time. A great way to determine how much money is coming in versus going out is by doing a simple cash flow analysis. This will help identify any financial problems before they become significant enough to cause a major issue.
How to stay on top of it: The more you’re able to project your cash flow, the easier it will be to plan for any potential issues. This is also why setting goals and establishing milestones is such a valuable business practice. It helps keep everyone on track and prevents unexpected obstacles from acting as stumbling blocks. Cash flow forecasts aren’t only useful for predicting income. They can be used for budgeting expenses as well!
Cash flow is a key component of any business. The more money that comes in or you get to keep, the better your company will be able to grow and thrive. There are many ways to improve cash flow, so take some time to evaluate your current situation and start implementing new strategies today!