A positive cash flow—when more cash is flowing into your business than out of your business—is a sign of financial wellness and efficient management. It is a vital piece of the puzzle to sustaining long-term growth. Read on for some strategies to help maintain a positive cash-flow.
Implement a cash flow projection. This is a basic spreadsheet that you can use as a general guide for forecasting cash flow. It will help to realistically estimate when money will be coming into the business, when it will be going out, and what you’ll have remaining once expenses are accounted for and income is recorded. The key word, however, is estimate. While it isn’t meant to be a precise projection, it should help you anticipate your cash flow for the coming months.
Knowing ahead of time if a cash shortfall is in the forecast will allow you to perhaps negotiate upcoming payment dates or even obtain a loan before that deficit is realized.
On the other hand, if a surplus is projected, take the opportunity to set funds aside for future deficit periods. A projected surplus might also be the right time to invest in the following:
- Employees: If retaining knowledgeable and valuable employees means offering raises or bonuses, the investment is worth it. The expense would likely be less than hiring new staff, not to mention the time investment of training new employees.
- Technology: Look for ways you can automate and simplify processes with technology. Depending on your business, this could mean establishing a remote-work infrastructure, focusing on higher-value business goals, or promoting efficiency through operational changes.
- New opportunities. You can’t predict when unexpected opportunities and prospects for growth will come along, so take advantage of these opportunities when you’re in the position to do so.
Invest in Accounting Skills
In order to stay current on the status of your cash flow, basic accounting skills are non-negotiable. If payables and receivables, inventory, debt, and cost-and-profit aren’t your forte, be willing to take a course in business accounting or find a way to implement hiring an accountant into your budget.
Keep Track of Cash Flow Daily
Sales and revenue may command your interest and attention, but daily cash monitoring will help you avoid unpleasant surprises. Use your cash flow projection to know your projected cash flow for the next 30 to 60 days. Daily check-ins will allow you to catch any downwards trends and take action. Follow up on overdue invoices, scale back on any non-essential purchases, and make any needed adjustments to get your cash flow moving in an upward trend.
A solid (and probably obvious) strategy to increase cash flow is to increase sales with established and new customers, but business growth takes time. In the short term, try these methods to incentivize clients to pay sooner:
- Generate and send out invoices as soon as possible
- Offer discounts for quick payment
- Follow up with customers who tend to stall payment
Continually Aim for a Healthy Cash Flow
Managing a positive cash flow prepares your business to adapt to changing market conditions, fluctuating economies, and periods of growth as well as stagnant seasons without needing to rely on loans and investors. Once your investments are consistently heading in the right direction, a positive cash flow should gain momentum and spur a rhythm of sustained company growth.