EA - 7 Tips to Maintain Positive Cashflow for Your Small Business

7 Tips to Maintain Positive Cash Flow for Your Small Business

It doesn’t matter if you are in the beginning stages of a startup or if you have a successful, established business, your long-term success rests on your ability to maintain positive cash flow. Whether you are bringing in $1000 per month or $100,000 per month, you need to be sure that your current business needs are met with cash in the bank.

How is Your Company Doing?

Your cash flow snapshot is a good reading on the current performance of your company. So, take time to review business cash flow statements regularly. This information will help you evaluate the things that are working and things that are hindering your growth. Then, you can use the data to implement changes that will help you reach higher levels of success.

Not only is the goal to avoid negative cash flow or any activities that will hurt your profit margins, but you also need to be looking at the things that will help with expansion and growth in the future. Too often, cash flow analysis is only focused on the current month or quarter. It makes sense that you are evaluating current financial obligations and requirements that are coming up. But you shouldn’t let your current situation overshadow resources that might be required for business development in the future.

It is a learning process as you identify the strategies that support your immediate business needs while preparing for the future at the same time. There’s no question that good cash flow will be required for all of these efforts.

How to Maintain Positive Cash Flow in Your Business

You might conceptually see why positive cash flow is required for your company. But it can be a challenge to identify actionable steps that will have an impact on your cash flow outlook. Here are a few tips that will help you boost profit margins, minimize expenses, and ultimately keep more money in the bank:

  1. Ongoing Spending: How much money is required to keep your business running each month? You should have a clear budget and spending goals to determine how much you need in the bank to pay for rent/mortgage, utilities, payroll, inventory stocking, services, and more. You can’t avoid overhead costs, but there might be solutions to manage the total amount that you are spending every month. Go through the spending report in detail to see if anything can be cut or trimmed down so that you can reduce the amount of money going out the door each month.
  2. Big Purchases: Even if you are keeping up with the ongoing expenses for your business, sometimes the big purchases can be crippling. Whether you are facing a large tax bill or you need to invest in equipment or business development efforts, you can’t sacrifice the payroll cash. Look ahead so that you can anticipate potential costs in the future. Then, shape your monthly saving and spending plan so that the cash is available without the need to dip into credit.
  3. Set Up a Line of Credit: The hope is that you won’t need to rely on credit for your business expenses. But it’s good to have a backup plan in case you get in a pinch. One mistake is to wait until your time of need to run to the bank for a line of credit application. Instead of trying to overcome the problem at the last minute, it’s better to set up the line of credit when you have positive cash flow, and your business is doing well. During this application process, the financial institution will run a complete check on your financial records to determine whether you will be approved for the line of credit. They want to be sure that you will have the cash to pay back the loan, and this information will also affect the loan limits. Securing the line of credit right now could be the difference between keeping your company going in the future vs. not being able to pay your bills because of cash flow issues.
  4. Minimize Interest and Late Fees: It might seem ironic to talk about avoiding debt right after the tip that suggests you secure a business line of credit. But there’s no question that it is harder to manage your cash flow when you are spending high amounts of money on late fees and interest costs. The more debt you accumulate, the more money you will be spending to delay the payoff of that loan. It could result in a domino effect that makes it hard to pay your bills on time, resulting in late-fees being added to your balances. Set up automatic payments and make sure that you always have enough to cover the minimum payments. A better solution is to pay as much as possible every month so that you can pay off the debt and eliminate the loan payments.
  5. Dial in Your Pricing: It might be tempting to offer deep discounts if you are trying to bring more customers through the door. Keep in mind that these discounts could result in problems in the future. Offering discounts to all customers will cut into your profit margins and even devalue your service in the future. See the value in the products and services that are offered to your customers, and avoid the practice of “racing to the bottom” to beat your competitors based on pricing alone. Customers are willing to spend more money when they can see that value and quality are available with a higher price tag.
  6. Stay Ahead of Receivables: You need to follow up on outstanding invoices to ensure that you are receiving payments from your customers or clients. Not only should you keep a detailed list of the money that is owed, but it is smart to put together a follow-up system if these payments are late. When you are collecting overdue money, time is of the essence. Stick to the payment plan and make sure that receivables don’t fall low on the priority list if you are distracted by other business management tasks.
  7. Boost Cash Inflow: Are you receiving an inflow of cash every day or week? Depending on your business model, the timing of customer payments might vary. You need to make sure that you are making sales consistently to receive the money that will keep your company running. It all comes down to the numbers. Look at the target amount of income you want to receive each month. Then do the calculations to see how many sales need to be made on a monthly, weekly, and daily basis. Finally, determine the most effective activities to help you connect with paying customers so that you can close enough deals to meet the needs of your company.

Cash Flow is More than Just Paying the Bills

While it is important to ensure you can pay your bills and obligations, cash flow is about much more than just paying for these ongoing expenses. Creating good cash flow will set you up to make the spending decisions that help your company grow. When you have extra cash in the bank, you have the opportunity to invest in marketing that brings in new customers. You can also put the extra money towards business development and product research to improve the products and services that are offered. Additionally, good cash flow is essential so that you can maintain the right amount of inventory, so these products are always on hand when customers are ready to buy.

Finally, don’t overlook the peace of mind that comes when you know that there is money in the bank. You can’t put a price tag on the lower stress levels you will experience when you have an emergency savings account in place for a rainy day. Good cash flow strategy and management could be the difference between business success and failure, which is why this task should be at the top of your priority list.

Keeping up with Accounting and Bookkeeping

The foundation of an effective system for cash flow management should be based on the right bookkeeping and accounting strategies. You need to track the transactions that are moving in and out of your bank accounts. Data-driven decisions are important to help your business flourish in the future.

As a business owner, do you find it challenging to keep up with the accounting and bookkeeping tasks that are required? You are carrying a lot of responsibility, so it’s understandable that you find it difficult to stay consistent with these efforts.

Instead of stretching yourself thin with too many responsibilities, consider the benefit of bringing in a good outsourced accounting team. These services will improve your financial systems and help you avoid potential cash flow issues. Working with an experienced financial team is one of the best things that you can do to support your business goals.

For more information, reach out to us at Easier Accounting. We are here to help with anything that you need for accounting, tax preparation, financial advice, and more. Call today: (888) 620-0770.

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