Top 7 tips for maintaining positive cash flow in your business Whether you’re running an established business or launching a startup, maintaining positive cash flow is essential to ensuring long term success. Positive cash flow in a business is a good indication of current performance and it is recommended that you regularly review your business’ cash flow statement so that you can take the necessary steps to prevent negative cash flow. To help you with this, we’ve put together a list of top 7 tips for maintaining positive cash flow in your business.
- Spend Wisely
When launching a new business it can be tempting to invest all of your money straight away to ensure your company gets up and running. It’s wiser to resist this urge, however, because the ultimate success of your business relies on the ability to perform long term. If you funnel all of your money into its launch you place your business in a vulnerable position later on when an unforeseen expense emerges. In order to maintain positive cash flow when starting a new company we advise you spend wisely and set aside a portion of your money for future expenses.
2.Keep on Top of Receivables
In order to maintain positive cash flow in your business, you should always make sure to manage your receivables closely. This can be done by keeping a detailed list of what you are owed starting with the most. Time is of the essence when collecting overdue money, you should contact receivables promptly and stick to a short payment time rather than a longer 60/90 day plan. Keeping on top of your receivables is essential to maintaining positive cash flow in your business.
- Avoid Late Fees
Provided your cash flow is healthy, you can save yourself a lot of money on late fees by paying your bills/payables on time. Not only do late payments effect your cash flow but, in the case of credit card fees, they impact your credit rating and help you to accrue credit card interest. One possible solution to avoid late fees is to set up automatic payments through your online banking account. Provided you have sufficient funds in your account, by enabling automatic payments you avoid late fees and stay on top of your bills and payables.
- Avoid Giving Huge Discounts
When launching a new business it can also be tempting to offer large discounts to potential customers in an effort to gain their loyalty. This type of strategy can be equally detrimental to your cash flow by reducing your profit or devaluing your service. You should reserve generous discounts for retained, loyal customers who meet strict criteria rather than offering them to everyone to make sure your profit isn’t effected and ultimately your cash flow.
- PAY YOURSELF FIRST, BUT BE REASONABLE
Business owners usually fall into one of two extremes when it comes to paying themselves. They either play the martyr and never pay themselves, or they overcompensate and drain the company. The first couple years are going to be tough. You can’t expect to earn Fortune 500 CEO calibre salaries right away, but you also can’t do all this work for nothing. Find a reasonable amount that pays the bills, and stick to it. Pay yourself a set amount on a specific schedule, and don’t use the company as a personal bank account. Paying for personal expenses through the company makes bookkeeping a nightmare, and you always end up spending more than you think by doing it this way. How much to set aside will depend on quite a few factors, but 25% of your “salary” is always a good place to start.
Getting this right isn’t easy, but it’s very simple. Get paid as soon as possible, only spend money you actually have, and only if it will be used to help you make more money.
- Create a sales forecast
This can be hard to do in the beginning, but after running your business for a few months, you’ll have a good idea of how sales will stack up month to month. If you are a retail shop owner, for instance; take a look at your inventory. Which items move quickly? Which items have been gathering dust for a while?
You really need to have a benchmark for what you think will happen. Forecast out by month, category and what revenue you anticipate based on history—the more detailed the better. Just write it down on paper. These forecasts can end up giving you the budgets to make purchases for your business.
- Know Your Expenses and Actual Costs
One reason that so many business owners have such difficulty maintaining a positive cash flow is that they don’t really understand their actual costs, and when payment for bills and other expenses are likely to come due. When you understand your actual costs, you are then able to calculate your breakeven point for the goods and services that you sell.
In this way, you can make certain that you are charging enough to generate an income stream that will exceed your costs. You should also aim to time your receipt of revenues to happen before payment for your expenses is due; so that you don’t end up short on the day your bills must be paid.
Just as you want to encourage your clients to pay you as quickly as possible, you should delay payments that you owe others as long as possible.
Running a business is hard enough. Doing it with cash problems will sap the energy out of the most enthusiastic business owner. Follow these tips and you will see your business succeed where so many others have failed.
And here’s to your success!
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