Cash flow is the net amount of cash and its equivalents being transferred into and out of a business.
Free cash flow, a measure commonly used by analysts to assess a company’s profitability, represents the revenue a company generates after accounting for cash outflows to support operations and maintain its capital assets.
Cash flow is the mainstay of your business. Positive cash flow means you can successfully run and grow your business, and negative cash flow — well, that’s bad news.
Positive cash flow indicates that a company is adding to its reserves, allowing it to reinvest in the company, pay out money to shareholders, or settle future debt payments.
Many businesses never achieve cash flow control. These businesses are always in trouble, chronically overdrawn and slow in paying bills. Most eventually fail.
A business dies when there is too little revenue to meet the immediate needs of the business. As a business owner or manager, you need to time your inflows and expenses so you are not embarrassed by insufficient funds.
Cash flow Improvement Strategies
What do you do when you have negative cash flow? How do you increase your positive revenue and get your business where it needs to be?
Send Invoices as Quickly as Possible
Sales and invoices are the lifeblood of a small business. You cannot get paid if you do not send invoices.
Make sure you stay on top of invoicing your customers. The quicker you send invoices out, the faster the money comes in. If your current invoicing process is tedious, consider switching to a cloud-based accounting app with attractive, easy to create invoices. This can help you speed up your invoicing process and increase your income.
Make sure you remind your customers when their invoices are due. Send email reminders a few days before the invoice is due, the day the invoice is due, and a few days after.
If they still have not paid, give them a call and continue sending reminders. Many accounting programs have built-in invoice reminders that you can automatically send to late-paying customers.
Increasing Prices can improve your cash flow.
If your prices are too low, you may be selling yourself short. It may be time to consider increasing the prices for your products or services. In some cases, lower prices can also make your company seem less qualified.
You want to strike a balance between keeping your prices competitive and fairly compensating the hard work you and your employees do. At the end of the day, you want to make sales, but you also want to make a profit.
Add New Services Or Products
Another solution to increase positive cash flow is to brainstorm new sources of income. Get the dream team together, sit down with some coffee, and consider new ways to expand your sales market.
Think about the current items or services you offer and consider if there are other items or services you think would be a good addition to your business.
Perhaps your marketing could be expanded. Think of new ways to get the word out about your business. Consider if there are any other groups of people that could benefit from what your business offers. Bringing in more customers is a great way to bring in more cash flow.
Think outside of the box and consider alternate ways to earn income as well.
Cut Out Unnecessary Expenses
Managing cash flow is not just about getting more revenue into your business. It’s also important to reduce your business expenses as much as possible. This means you have more cash to spare.
Carefully consider your current expenses. Cut out any that are unnecessary and try to minimize the necessary expenses as much as you can. It may seem difficult to do, but you (and your wallet) will feel much better.
Ensure your business is running as efficiently as possible. Focus on cutting time, not just costs. Analyze all of your current business processes and judge how efficient the current process is, and if there’s any way to speed up that process.
Liquidate Old Inventory
Inventory is one of the largest business expenses you might encounter. You need inventory to make a profit, but you want to make sure the inventory you’re buying is actually selling. Carefully consider which products sell well and which you have a hard time turning over. Take a look at your sales patterns to see when your busy and non-busy sales times are and order inventory accordingly.
If you have any old inventory that you’re having a hard time getting rid of, consider liquidating the items. Any money coming in is better than no money.