How To Increase Your Cash Flow Without Increasing Your Sales
One of THE MOST pressing issues business owners face is managing cash flow. The more cash that comes in the door, the more costs that have to be paid. And as your business grows it can become overwhelming to try and manage it all.
“Which expenses do I pay right away?” “Which costs can be deferred or delayed to later months without getting a call from the vendor?” “How do I pay everything – it just doesn’t seem like enough money?”
These are all question that no doubt are going through your mind. It’s frustrating I know. But stop and take a deep breath. B-R-E-A-T-H. I’m going to give you some tips in this post to help you with managing it a little better.
1. Make prudent business decisions. When you first become a business owner it’s very exciting. You finally get to make ALL the decisions. You don’t have to answer to anyone. You charge what you want. You can do things the way you want. You can pay for what you want. But don’t let this excitement get the best of you. Don’t just pay for things just because you have the final say on it. Pay for expenses that are necessary to the success of your business. And get them when you truly need them and can afford them. This is where budgeting and planning come into the picture. Keep your overhead low as long as you possibly can.
2. Track your numbers CONSISTENTLY. Keep good, accurate records of all your business transactions. Make sure every invoice, deposit and payment in your business are accounted for. Don’t let the busyness in your business keep you from knowing what is going on in your business. You need to know the financial metrics in your business in order to make those prudent decisions I mentioned before. It also allows you know when cash is coming in the door and when it’s going out the door. This is extremely important if you want to keep your account from overdrawing.
3. Forecast ahead as needed. Forecasting is the process of predicting the likelihood of things occurring in the future. No it is not being psychic. Although I wish it was. Forecasting comes into play when there are changes in your financial plan. That project you thought was going to start in March is now starting in June. Which means the revenue you were expecting is now also delayed. So what do you do? You should also look at the costs that were planned to be spent in March. Especially the capital ones. These are the major purchases – new computers, furniture and equipment or vehicles. Push these costs forward as well to ensure that there will be income to pay for them. And if it looks like the project will be delayed to next year, then so should the cost. Don’t put yourself in an unnecessary cash flow crunch.
4. Implement payment options. Just like you are managing your cash flow, so are your customers. Depending on your business, don’t be surprised when they don’t pay in full right away. Particularly is they are a business customer. Offering payment options will not only help your cash flow but also your customers. Think about it… if you don’t get any new clients in a particular month, you want to still have cash to keep the doors open. Cash is easier to manage when you receive it on a planned schedule then if you get it all in a lump sum.
5. Outside financing. If you have to get financing for operating purposes I suggest a line of credit and not a loan. Why you ask? With a loan you get all of the money up front and you are required to pay a fixed monthly payment of principal and interest over a set period of time. This makes for a larger payout every month. With a line of credit, you only pay interest on the amount you have drawn. Plus you usually have a year to pay back the entire principal drawn. Your monthly payment is interest only which makes for a lower monthly payout.