Fretting over finances and being a business owner go hand in hand. You are probably always asking yourself: what’s our bottom line or how much is our overhead? But the real question you should be concerned about is: how healthy is our cash flow?
The founder of Dell, Michael Dell, once said, “We were always focused on our profit and loss statement. But cash flow was not a regularly discussed topic. It was as if we were driving along, watching only the speedometer, when in fact we were running out of gas.”
Cash flow is the gas behind your business. You need cash to make cash. But here’s the real secret to better cash flow: cash flow isn’t just about bringing in more cash, it’s also about spending less on expenses because managing your cash outflows is just as important as managing your cash inflows.
Here are five easy tips that you can use today to generate better cash flow. Keep an eye on that cash flow gas tank, buckle up, and let’s get rolling.
Stay On Top of Invoices
First things first: you can’t get paid if you don’t send out your invoices. Using an invoicing software like Zoho Invoice or FreshBooks is a great way to help you stay on top of sending invoices. But bear in mind that sending the invoices is the easy part—getting customers to actually pay their invoices on time, now that’s the trick.
While it’s up to the customer to pay on time, as a business owner you’re not hopeless. Sending regular invoice reminders, incentivizing on-time payments with discounts or rewards, or even charging a fee for late invoices could all be good solutions to help you receive your hard-earned money. If you can’t waste time waiting for customers to pay you, invoice factoring can be a good cash flow solution to help you get your funds faster.
Cut Your Expenses
Believe it or not, you can be making hundreds of sales, receiving on-time payments from customers, and be rolling in the cash and still have a negative cash flow. Why is that? Because cash flow is calculated by both the cash coming into and the cash flowing out of your business. That’s why it’s so important to keep your business expenses in check.
To save money on expenses and improve cash flow, cut back any unnecessary business expenses, streamline your processes to be more efficient and reduce overtime, and carefully consider your inventory. Do the products you sell cost too much? Could you find a better deal with another manufacturer? Does your existing manufacturer offer bulk discounts? While we don’t encourage Scrooge-ery, be a Scrooge when it comes to cash flow. Your business’s bank account will thank you.
Reevaluate Your Prices
Don’t sell yourself short—in life or in business. That means carefully evaluating your current prices. Ask yourself: are my prices too low? Does the price I charge make up for the part cost or labor? You and your employees should be rewarded for the hard work you do. Plus, if you set your prices too low, you may come off to your target market as cheap or unreliable. Increasing prices could increase your brand’s image and your cash flow.
Increase Your Sales
The more sales the merrier—and the more cash you can bring in, the more positive your cash flow will be. Here are some tips for increasing your sales:
- Add new products or services
- Bundle items to encourage more buying
- Target a new clientele
- Create a more effective marketing strategy
And last but not least, don’t be afraid to opt for a little help. Taking on debt might be the last thing you think of doing, but a cash flow loan could be a wise investment and a lifesaver if you’re having cash flow problems. For example, a loan could help you purchase inventory ahead of the holiday season, and the sheer volume of sales could more than make up for the debt incurred.
In business, all roads lead to cash flow. Cash flow is one of the most important aspects of your small business, and the trick to successful cash flow is to manage both your cash inflows and cash outflows. So, keep an eye on that cash flow gas tank, put the brakes on unnecessary expenses, and drive on toward incoming revenue. Implementing these five simple tips will help you get well on your way.