CASH IS KING

Do you have ample cash flow monthly? It can be a tricky question for any business. Without adequate cash flow, you might not have enough to pay expenses as they come due. You might end up paying unnecessary late fees or miss out on early-pay discounts some vendors offer. Too often people believe that simply signing more clients or selling more products will fix their problems. Unfortunately, this tends to just mask more serious problems and doesn’t really fix anything.

The key to cash flow is not just having plenty of it, it’s making sure you maximize what you have. If you have been organized and diligent in your accounting, then you should have access to information that can start this process right away. If your accounting system isn’t up-to-date, now is the time to remedy that!

Review your accounting data to determine how much cash is needed monthly to keep the doors open. Be sure to project income and expenses on cash basis. Meaning, when money flows in and out of your bank account. See below for examples that can improve your cash flow.

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Some examples that can improve your cash flow:

INCOMING CASH:

MAXIMIZE ACCOUNTS RECEIVABLES

If you invoice customers, it is important to review your accounts receivable (AR) activity and see what balances you are carrying monthly. Analyze the account to determine the average time to pay. If a majority of your customers are slow to pay, you can offer an incentive, such as an early pay discount. This can dramatically improve cash flow by improving the reliability of payments. Knowing what you have and when you are going to have it will improve planning.

KNOW YOUR MARKET

Use historical sales data to determine your top sellers and top profit producers. When times are lean these are the products/services that you should be pushing harder.

PIVOT SALES

Stay aware of what your target market needs. When your core business is in jeopardy it can be life or death for your business. That could mean pivoting your products to better fit the current need. It could also mean adjusting the delivery median such as from brick and mortar to online.

OUTGOING CASH:

VENDOR TERM EXTENSION

Check to see if a frequently used vendor can extend your terms. For example, if your payment is due 15 days after invoicing, maybe they can change it to net 30 or net 60.

DUE DATE CHANGE

If your cash flow increases at a certain part of the month, say the 15th you might want to consider requesting a change in vendor due dates. If you have a bill that you are having a hard time paying on time because it’s due before the 15th see if the vendor will change the due date. For instance, from the 10th to the 18th. You might be surprised how certain companies are willing to do this. This type of planning takes time and the proper information, but it will help you to smooth out the highs and lows of your cash flow.

REDUCE UNNECESSARY EXPENSES

Review routine expenses. This includes monthly, quarterly and annual subscriptions. If there is a service you are no longer using, cancel it. Also, look at expenses that offer levels of service. If you are not using the full services offered see about downgrading the subscription. Maybe you are paying for pro but you really only need basic.

If you are unsure how to go about creating and maintaining a cash flow projection check out our latest training here!

Have questions or like this article, let us know in the comments.

~ Brandon & Christi are successful business owners who enjoy traveling and making a mess in the kitchen with their two daughters.

The article is for informational purposes only and should not be construed as business, accounting, tax or legal advice. Details are subject to change without notice.