Your business cash flow is one of the best indicators of your likelihood to succeed or fail. In fact, over 80% of business failures are due to a lack of cash. So if you want to last, you need to know how to manage your cash flow, leverage assets properly, and reduce costs as much as possible.
We’ve broken down three top principles of a healthy cash flow, with actionable tips to achieve them.
Increase Incoming Cash
People look to improve their cash flow first by increasing their cash. But, unfortunately, simply increasing sales isn’t something you can control.
So, here are some other tips that can help increase your cash on hand.
Collect Billables Quickly
Many businesses manage the sales portion well but find their Accounts Receivable balance too high to sustain the day-to-day costs.
So, to avoid lots of outstanding bills:
- Have a clear payment deadline, with incentives for on-time payment. You can offer discounts for automatic payments or late fees that increase the longer the payment is due.
- Set the tone early in the relationship that invoices must be paid on time.
- Have a service contract that protects your rights if balances are unpaid. Hopefully, you won’t need to use it, but signing a contract like that is an excellent deterrent to overdue balances.
Be Careful About Offering Payment Plans
Many businesses offer payment plans for larger services, which is understandable. But you will likely be fronting the cost of the service right away. So make sure you balance your need for cash with your client’s base availability to pay.
- Shift your target market to a client base that can afford to pay what you need upfront.
- Incentivize full payments by discounting the upfront price.
- Determine if you should outsource part of the process to reduce costs.
Note: A payment plan is different from a subscription service. A payment plan describes breaking up a fixed balance over time. A subscription service is a repeating payment of a fixed cost that covers the service.
Offer More Services
Another way to increase cash flow is to capture more business through additional products and services. Start by analyzing your existing skills and workflow to see if any companion products or services could easily slide in.
Make time to continue your education and experience through conferences, workshops, or specialized training to continue offering new and improved experiences. It’s also a great way to increase sales to existing customers– a far cheaper way than increasing sales via new customers.
Another great way to increase your cash flow (with perhaps the fastest results) is by reducing costs.
Try Outsourcing Work
We mentioned that expanding your services is a great way to increase your cash flow– but that doesn’t mean you have time or money to do more! Outsourcing to subcontractors or freelancers is a great way to provide new services at a much lower cost and risk.
Freelancers and subcontractors work on a “per project” basis, meaning you don’t owe them steady work or benefits. Instead, you can work with them on an on-going basis like an employee or pick up extra help for a specific project. You’ll also know the cost of their help upfront, so you can budget the benefit from the price.
Negotiate with Vendors
Price negotiation has become a lost art in many ways. Still, many providers and vendors are willing to work out custom deals with clients. You may be surprised by the return you can get from a phone call!
For example, try calling your insurance provider to see if you can lower your premiums. You may be paying for more coverage than you need or qualify for discounts for automatic payments or a great track record.
You can also talk to suppliers about getting a discount for buying in bulk or promoting their products on your website or to your clients.
Spread Out Bill Payments Over the Month
Having a great cash flow means spreading out your obligations in a manageable way. While you may prefer to have your bills all paid on the first of the month, that means you will always have a significant dip in cash flow at the same time. And that can leave you vulnerable to unexpected costs or needs.
Instead, spread your bill payments out across the month. Smaller, more frequent debits will give you the highest, steady available cash flow throughout your billing cycle.
Leverage Available Assets
Finally, let’s talk about how to use the tools available to you to increase your cash flow. Assets may include special software and professional support– not just your existing cash and equipment.
Rent Out Availble Assets
Your company likely has physical assets that you could use to create additional revenue or contribute towards their payments. So take stock of your assets and see if you could reasonably loan out any for an increased cash flow!
For example, if you don’t use your entire storage or office space, see if your contract allows you to lease out the unused space directly. You could also try renting out your equipment when you’re not using it. You may be surprised by the money you could recover from your assets!
Use the Right Financial Software for You
Many business owners can’t afford a seasoned CFO and don’t have a finance degree or certification. But relying on a bookkeeper or accountant alone won’t help you fully understand your cash.
So ensure that you invest in understanding your finances. There are many affordable but high-powered financial software and apps that reduce financial mistakes, increase live feedback and create helpful charts and visuals. These tools will empower you to make informed financial decisions without extensive financial training.
Get Professional Support and Mentorship
A final asset to highlight is leveraging the support of pros and mentors to help you skip common mistakes and find new, creative solutions. Managing business growth is challenging, especially when you already feel strapped for time and resources. So how do you know which changes will bring the greatest ROI and how many new things to balance at once?
That’s where we come in.
Think of us as a third-party partner committed to supporting you from start to finish. That includes discovery, implementing changes, and sticking around to see your business recover. And we’ll still be there in a year or two to help you adapt to new needs and growth!
Let’s start the conversation today and get your business performing up to its potential!