You have to spend money to make money, right? That might be true, but you also shouldn’t spend outside of your means. Finding that balance – that optimal flow of money in and out of your business – is one of the most important aspects of building a successful company. But how do you get your cash flow under control? And how do you grow it? Here are 7 ways to increase cash flow for your business. Apply these simple ideas to gain a better handle on your business and grow it steadily.
1. Measure Your Current Situation and Forecast Your Upcoming Cash Flow
Before you can make any changes, you need to have a strong understanding of the data. You can do this by collecting all of your inflows and outflows and building a cash flow forecast in Excel. Write down your list of revenue and expense sources, as well as the probable increases or decreases to each line item, then tackle each bucket to find opportunities to grow revenue or reduce expense which leads us to…
2. Require More at the Point of Service
Along with your forecast, take a look at how long you have to “float” your cash. If you are usually paying your vendors about 20 days after buying supplies, but you bill customers with an average of 45 days before total payment due, that’s a 25-day difference of cash out before cash in! While you might not be able to accept credit cards immediately at the point of sale because services have not been completely rendered, if you can get a down-payment or set a payment plan, you can start to shorten your cash cycle.
3. Reduce How Long it Takes to get Paid
Chasing down late payers can cost your business a lot of money. From the extra time and effort it takes to follow up with a customer, to how it takes you away from managing your employees, getting paid late is almost as detrimental as missing a new sale. Make it easy for your customers to pay by emailing an electronic invoice with a payment button, remind them 10 or 15 days before the payment is due, and allow them to pay in whatever form is convenient for them – whether it’s credit, debit, or eCheck. Additionally, you might want to offer a nominal discount to those customers who pay early.
4. Think About Raising Your Prices
No one wants to pay more for the same thing but take time to examine your service and product offering. Have your costs been rising slowly? Can you eliminate low-margin goods or focus more on higher-margin services? When was the last time you raised your prices? Though it can be a scary thing to do, if you can explain why you have to change, and phase in small adjustments, your customers will understand. Search the internet for nearby and similar businesses to see if you have room to increase your prices while staying competitive in the marketplace.
5. Move Ongoing Clients to a Retainer Relationship
If your business provides professional services, you may have clients who reach out for the same types of services repeatedly. If you move them to a retainer or subscription-based offering, you can sign them up for recurring services and more accurately forecast your monthly revenue. Securely store their payment information so that you can directly debit or run an automatic billing payment on the right frequency for the relationship.
6. Renegotiate Supplier Terms
The opposite of getting paid faster is delaying your cash outlays. If you pay back suppliers at 60 days versus 30, you have more time to collect from your own customers which increases your cash on hand. Alternatively, just like you might offer a customer a discount if they paid in full early, your suppliers might do the same. It doesn’t hurt to ask if they’ll give you a 5 or 10 percent discount for paying faster – though don’t pay early if it doesn’t benefit your business. Finally, you should do a price comparison at least once a year. You might find better rates if you switch, or you may be able to procure a volume discount by consolidating your suppliers.
7. Keep Your Cash Flow Visible
Once you’ve spent time building your forecast and you’ve got a handle on your finances, keep your information up-to-date with your accounts receivable software (or Excel or a ledger). You will want to keep track of how many outstanding invoices you have, what has settled in your account and how that compares month-over-month and year-over-year. With simple reports, cash flow difficulties will become a thing of the past.
With these 7 steps you can continue to increase your cash flow and grow your business sustainably. Are there any tips we missed? Add them to the comments below!