Tips on How to Manage Cash Flow

Cash flow is the movement of money into and out of your business. Think of your business staying afloat on a river of cash. If too much cash comes in, you’re riding too high and aren’t investing or planning enough for future dry spells. If too much cash flows out, your business is grounded and isn’t going anywhere.
 
A business can be profitable, but still have a negative cash flow. If a business owes money before payments are collected and cash is “in hand,” it has a negative cash flow.
 
Check out these ways to navigate the ups and downs of cash flow:

1. Monitor your cash flow. Your bills may be more predictable than your income. That’s why it’s important to perform cash flow forecasts and check them weekly. Accurate forecasting will enable you to plan for new equipment investments, dips in seasonal sales, client gifts, and other irregular expenses. It’s good to forecast for a full 12 months. Cash flow statements are typically divided into 3 segments:
   
   
   • Operating Activities (resulting from daily routine activities)
     • Income from product or service sales, tax refunds, depreciation of property or equipment
     • Expenses such as: supply and inventory purchases, payroll, rent, utility payments, advertising, insurance premiums, taxes, equipment rental costs, etc.
   
   
   • Investing Activities (larger, one-off activities)
     • Income from selling equipment or property, earned dividends and interest
     • Expenses to purchase or improve equipment or property
   
   
   • Financing Activities (also larger, one-off activities)
     • Income from owner investment, a loan, or line of credit
     • Expenses from loan repayments, an owner withdrawal (payment)

2. Improve your inventory. If unused equipment and inventory isn’t being used or isn’t going to sell, get rid of it. Unused inventory consumes valuable space that could otherwise hold useful items.
    
3. Perform due diligence. Invest in a credit check before entering into a contract with a new customer. This small investment could save you a headache and wasted time and expenses later.

4. Ask for a percentage upfront. Your payment terms should include asking for a percentage before work begins. This is not uncommon and should not come as a surprise to your customer.


5. Invoice as soon as possible. State your payment terms clearly and invoice immediately. The sooner you invoice, the sooner you will be able to collect.

6. Entice customers to pay earlier. Offer discounted rates to customers who pay earlier and add late fees for late payments. This is similar to what you see on your own tax bills.

7. Make it easy. Paying bills is time-consuming, so at least make it easy. Consider digital billing and offering customers online payment options. This will save both you and your customer the cost and delay of sending paper invoices and checks.

8. Chase late payments. If you are not being paid on time, consider structuring a payment plan for the non-payer. Receiving regular small payments will add to your working capital, and a payment plan will help to predict cash flow.

9. Ask for more. If you can do so and still remain competitive, raise your prices or rates. This is always a touchy subject, especially now with the pandemic, but it’s worth evaluating. Another way to ask for more is to upsell — offer related, add-on products. Increasing discounts for larger orders can also help bring in more cash.

10. Spend less. Re-evaluate your expenses to see where costs can be cut.

11. Cast a wide net when shopping for suppliers and attracting customers. Let suppliers know that you’re requesting quotes and are looking for the best price, as well as reliability and quality. On the other end, look for ways to expand your current customer base.

12. Take advantage of payment plans. Before you buy a big-ticket item, consider renting vs. owning and payment plans vs. everything paid upfront. Ownership requires maintenance and the effort to sell it later. While financing will cost more over a longer period of time, it will enable you to keep more cash in the business and better predict cash flow rather than absorbing one large hit upfront. If you do decide to pay in-full, try to negotiate a discount.

13. Apply for a business line of credit. A line of credit allows you to borrow up to a certain limit and then pay interest on only the amount you borrow. It provides a financial cushion and is a good way to keep your cash flow positive.

14. Get rewarded for using your credit card. You could be missing out on free money if you’re not getting rewarded for what you’ll be spending anyway. Select a card that will serve your business well.

If you're interested in learning more about our business solutions, reach out to our Business Department at 412-507-5174.