When it comes to running a business, managing cash flow is the propellor to the boat. Without it, you won’t go anywhere—unless you try paddling with your hands, of course. Even if that were the case, you quickly realize that it won’t work when you go upstream
Cash flow is crucial for businesses, and it’s even more crucial for startups and early businesses. Oftentimes, early startup businesses fail within two years due to poor cash flow management. It’s common knowledge that the two main elements to analyze in your business cash flow are:
- Accounts receivable: what customers and clients owe your business.
- Accounts payable: what you owe your business suppliers.
In order to stay afloat and see your business succeed, you must manage these two key aspects. When you master your cash flow management and navigate toward the profit line, you’ll propel your business towards success. Here are 10 highly effective habits to protect cash flow.
1. Know Where You Break Even
Knowing exactly when your business becomes profitable helps your overall cash flow because it gives you an early goal. When your business has an early set goal to strive for, it helps predict and protect future cash flow—keeping your business running successfully. In the meantime, focus all your efforts on managing your early business cash flow until you hit that profit line.
2. Instead of Focusing on Profits, Focus on Cash Flow Management
True, we just got done saying that the profit line was important. However, both are important and both simultaneously are crucial to cash flow management. Use your profit line as an initial goal, and then afterwards focus on cash flow management. After these first two steps, your business is poised for success.
3. Keep Some Cash Reserves
Unfortunately, most businesses will experience cash shortfalls. It’s for this very reason that keeping cash reserves handy determines whether or not your business survives these shortfalls of money. If you start and run your business with some extra cash reserves, you can more easily focus on managing cash flow when experiencing cash shortfalls.
4. Use a Cash Flow Worksheet
Whether using a spreadsheet or simply writing it down, it’s important for every business to use a cash flow worksheet. Keeping a worksheet does wonders when managing cash flow.
5. Collect Receivables ASAP
Try keeping net-30 and net-60 contract terms to a minimum. If necessary, create a task of keeping an eye on receivables—along with contacting customers periodically to collect payment—to an honest and persistent member on your team.
6. Encourage Customers to Pay Faster
There are many ways to encourage your customers to pay faster. For instance, offer your customers incentives like early payment discounts. Also, keep credit requirements strict. Establish a set of standards for determining credit eligibility. Enforce those standards strictly. As a general rule of thumb, you don’t want every customer approved for credit.
7. Extend Payables as Long as You Can
Get the best deal you can on payables. A good place to start would be to extend your payables to net-60 or net-90, if possible. However, some suppliers charge late fees, so make sure payments are on time.
8. Use Creative Incentives to Boost Sales
This can be fun to come up with! For example, some creative ways to quickly boost sales could include sponsoring a fun contest, hosting a customer appreciation event, offering referral bonuses, or taking your employees on a business publicity tour.
9. Dub Someone the Cash Flow Monitor
Designate the task of monitoring cash flow to someone who qualifies, a trustworthy employee. Make sure that person informs you when you reach a certain threshold. For example, a good start would be to notify you when your cash flow hits $1,000.
10. Use Technology to Your Advantage
Last but not least, keep technology to your advantage. For instance, keep cash flow spreadsheets in the cloud at sites like Dropbox, OneDrive or Google Drive so you can access them from anywhere. Additionally, it’s good to use professional accounting software.
As an added note, make sure you keep your files secure. Make sure they remain secure even if you have to combine your storage and accounting software into one package.
Southwest Recovery Services
As long as your cash flow stays positive, your business will make it through turbulent times. Project future cash flows based on history and financial data. It takes the uncertainty out of the process, helping you sleep better at night.
We are a non-contingency collection agency. To learn more about how we can help you or your business with financial concerns, contact us today.