Tuesday, January 1, 2013

Maintaining Positive Cash Flow in Your Business

If you do not have good cash flow, your business will suffer. As in your own life, the lack of cash flow can cause bad decisions to be made.

You may say my company makes lots of money. You pay all your bills and even have cash reserves for future projects. You don’t have cash flow projections, and you’re doing fine. 

The problem with good revenue flow is that all that cash could cover up bad business practices. The problem comes when the revenue falls.

Here are a few good tips for your cash flow management.

1. Always keep a percentage of cash as a reserve

When starting a business, you have an initial stake in cash. Many businesses make their first mistake by thinking everything will go well. In the first year of a new business, many things can go wrong. 

Business owners are great with business ideas but bad with the management of day to day operations. Keeping a percentage of cash in reserve will soften the bumps along the way of your new business.

Evaluating a company's financial statements helps you decide how to improve your business’s finances and plan long-term growth. Financing cash flow is a favorable option for businesses that generate revenue for sales but don’t have assets to offer as collateral.

Cash flow financing means borrowers use cash as collateral to secure a loan.

2. Accounts receivable collection times can be a nightmare

In the best scenario, you serve your client and expect prompt payment. But in reality, your client doesn’t see things the same way. Their business is on their minds, not paying you. 

Don’t let collections become a major part of your business day. You need to convey to your clients through invoices and communication that you want to be paid in a timely way.

3. Set up terms and discounts on your invoices

You’re not in the financing business. Offering credit to your clients is a courtesy, not a requirement. Do not let them abuse it. It’s OK to have terms on your invoices but don’t go overboard.

3. Don’t pay fees

Whether it’s late fees on your bills or NSF fees to the bank, it’s just unnecessary. Keeping track and being aware of what’s happening in your business is your job.

4. Discounts aren’t always necessary

It is not unreasonable to charge a reasonable price for your goods and services. Yet many companies fear losing business by not giving discounts. You will find when making business-to-business sales that your customers are not looking for unreasonable prices. 

They are counting on you, and they like your product or service. They want to buy from you and know you need to make a profit.

5. Don’t forget to pay yourself

There are two kinds of business owners, the ones that like to grow companies and are entrepreneurial and the others that look at the company as a cash machine. 

There are problems with both types. The business builder gets their satisfaction out of seeing a company flourish. The big spender looks for the company to furnish a high lifestyle. 

You need to find a happy medium between the two. The amount of pay an owner takes has to balance with the company's state. Finding the balance is the trick.

Cash flow is the lifeblood of your business. How you manage it determines if your company prospers or fails.

1 comment:

  1. Hi Dave, great tips from an experienced entrepreneur. Cash flow management is certainly the way to keep your business up and running. Everything must be always kept in check. Reasonable expenses for reasonable prices.


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