Cash flow is a necessity for your business. It’s the current that keeps things moving. When cash flow becomes strained, hard days may lie ahead. For the longer term, cash flow management can help your business grow, compete successfully and increase its market share. No matter the industry, product, or goal, cash flow is essential. So, let’s explore all things related to cash flow and then outline tips to help manage cash flow during your slow time.
First, what exactly is cash flow? Cash flow can be described as cash that comes into and out of your business in a particular period of time. Positive cash flow simply means that you have more cash coming in than going out. Cash flow pays your bills and covers expenses. When you have negative cash flow, you are not able to make payments toward your variable expenses – payroll, utilities, materials, etc.
Understanding the difference between cash flow vs. revenue. Revenue measures how much money is coming into your business, while cash flow measures both how much are coming in and how much is going out. Cash flow also takes into account things like financing activities: did the bank just deposit a $10,000 loan into your account? It’s cash, so it counts!
Why does cash flow matter? Cash flow refers to your cash on hand, your ability to operate your business at its current level. It is the true reality check for your business. Learning to manage cash flow is ground zero for growing and thriving.
5 Ways To Optimize Up Cash Flow
1. Stay on top of cash account balances – It is important to be on top of your accounting to manage cash flow. Although it’s not the glamorous part of your business and often not the part that business owners feel “passionate” about, it’s not an area to be neglected. Moving money from account to account to avoid fees, keeping a clear view of what is coming in and what is going out, and optimizing cash flow is imperative to your business success.
2. Invoice faster or more frequently – Many businesses get busy and don’t invoice promptly. Keeping cash flow flowing requires timely, effective invoicing processes. These are areas of the business where automation can be extremely beneficial.
3. Collect faster – A streamlined accounts receivable process can also help your cash flow challenges. Slow paying clients can be asked to keep a credit card on file or an ACH authorization. Working on controls of the payment schedule avoids delayed payments and friction in your cash flow channel.
4. Pay off debts – When your cash flow outlook is positive, it is always a good idea to explore the reduction of debt. The interest and fees paid on debt have a negative impact on your cash flow, by eliminating them, you increase your cash on hand number. Always consult with an accounting or tax professional about the right mix of debt for your business, however.
5. Reduce spending – It seems obvious, but one way to increase the cash flow is to decrease spending. Unnecessary expenses can put unnecessary strain on your business, especially if there are cyclical down periods that you face each year. Getting a handle on expenses and keeping unnecessary ones at bay is essential to weathering the slow period to ensure your business’s success.
Managing cash flow when things are slow:
- Plan, plan, plan. A business that experiences a slow season must plan for that. Of course, exploring ways to keep the cash flow flowing during the slow season is a good exercise, too. We’ll cover that next, but the peaks and valleys do require a lot more planning ahead than the business that has a steady stream of cash flow all year long.
- Explore other revenue streams. Businesses that face cyclical down cycles often have to explore ancillary product or service offerings to offset the slow periods of their core businesses. With a bit of strategic thinking, you might be able to come up with services that your customers need during the slow months or pricing strategies that help combat the ebbs and flows of your marketplace.
- Make your money work for you. From savvy investment strategies to optimized accounting procedures, your cash on hand might be able to do more than it’s currently doing. Any dividends, interest payments, or savings can certainly help support your cash flow optimization efforts during your slow period.
Managing cash flow is an ongoing challenge for any business, but especially for those that have seasonal aspects to their work. The key to winning at the cash flow “game” is to take control and optimize at every corner. Those that take a proactive tact regarding their cash flow are seeking places to improve and identifying places to pivot on an ongoing basis.
Spring-Green business opportunities come with the well-established, road-tested processes in place to help you succeed. With a recurring revenue model, we help to keep a good cash flow. Tap into our business model and avoid having to recreate the wheel.