Cash Flow Tips & Tricks

Cash is king—it’s a common saying in the business world. But surprisingly few take steps to efficiently manage their cash flow so they don’t wind up with an empty bank account and nothing to pay the bills.

One of the main causes of business failure is poor cash flow management.

Getting control over your cash with a cash flow projection budget and accounting software helps you prepare for slow periods, plan your financing and have peace of mind.

The Good News: Cash flow management is easy to improve with a few simple steps.

Follow these 6 tips and tricks to help you get a better handle on your Cash!

First, make sure your business is earning a reasonable profit. Even the greatest cash flow management won’t help if your fundamentals are out of whack.

•   Analyze each product and service separately to see whether it’s pulling its weight. Make sure your products are appropriately priced, and work to eliminate inefficiencies.
•   Instead of just chasing sales, chase profitable sales.

This is your early warning system for cash flow hiccups. 

•   Every business should have three months of expenses available at all times. This is especially important for any start-up business
•   The first step is to make a Cash Flow Budget for the coming year with 12 months of projected revenue, cost of goods sold, expenses, and profit.
•   You will need to have proper accounting software in place that will allow you to create invoices on the go, track your revenue, cost of goods, expenses, and profit. The software will track your Accounts Receivable and Accounts Payable.
•   Quickbooks Cloud or Sage 50 are two proper accounting softwares at reasonable prices.
•   Using a spreadsheet, enter expected cash inflows and outflows on a monthly basis, along with any major anticipated “big ticket” capital purchases and financing needs.
•   Through the year, check your actual cash position regularly—once a week or month— looking for variances from your projections to see how you’re doing and taking prompt action to ensure you will have enough cash on hand to meet expenses.
•   By monitoring your actual inflows and outflows,your cash flow budget is also where you can experiment with “what-if” scenarios. Use it to see the impact of various initiatives, such as increasing prices, making a machinery purchase or stopping doing business with your slowest-paying customers.
•   Use the projection to anticipate slow periods and plan in advance what to do about them.

One of the most common cash flow mistakes is using cash to buy a major long-term asset, instead of getting financing. Even if you feel flush right now, you may suddenly wind up short of cash if you experience a sudden revenue shortfall or rapid growth.

•   If you need equipment, leasing is a better option than financing equipment. The monthly expense tends to be less because you are not financing the entire amount of the equipment. Also, the lease is a full write-off expense for your business taxes. If you’re looking to lease equipment, we can help!
•   Use your cash flow projection to plan your financing needs ahead of time, not in the midst of a crisis, when bankers may be wary to lend. Seek a business loan early.
•   It is also recommended to match the lifespan of a purchase with financing of similar duration.

Getting money into your business more quickly can save you carrying costs on your line of credit.

•   Send out invoices more quickly.
•   Ask customers to pay electronically.
•   Charge interest to slow-payers.

•   Those who pay late, complain incessantly or return products frequently.
•   They drain attention and resources from your best customers.

Facing an unexpected cash flow crunch? You can raise cash quickly using various techniques:

•   Approach your bank for help. If you’re finding cash flow tight, consider approaching your bankers for a Temporary postponement of principal payments
•   If you are just establishing a business bank account, request a small business line of credit, and credit card to start your business properly. This will allow you to cover any unexpected incidentals that may arise.
•   If you are an established business of over two years, the bank can give you up to 15% of revenue, or 75% of your accounts receivable in a business line of credit.
•   Check your inventory to see what you can sell off. Many businesses have old inventory taking up space. Look at what hasn’t sold and liquidate it, even at a loss.
•   Sell off assets—Check unused equipment, machinery or other assets you could sell to generate cash.
•   Consider renting floor space to another company (freed space from selling inventory or assets).
•   Offer your customers a big discount to earn some quick sales.
•   Consider shedding product lines that don’t sell well. Faster inventory turnover could mean lower interest on your line of credit and more profit for you.
•   Ask suppliers or your landlord for extra time to pay bills.

•   Consider variable pay and reduced hours—Tie some of your employees’ pay to actual business performance. If you’re in a cash crunch, consider temporarily reducing employee hours.
•   Renegotiate your lease—Ask your landlord to renegotiate your lease. Or offer to make reduced payments now and make up the shortfall in future months.
•   Stretch payments—Offer to pay your suppliers slightly more—1% for example—if they give you longer to pay

Over the last 15 years, we’ve seen many business fail because they didn’t properly plan their cash-flow. On the other hand, we’ve helped many business owners implement the proper accounting practices and / or financing to grow their business to extreme success!  

Book a call today and we’ll assess your current situation and make recommendations.

CLICK THIS TO SEE WHAT YOU QUALIFY FOR IN 2 MINUTES!