Your company needs to have more cash coming in than going out if you want to succeed. This is called positive cash flow. Conversely, you have negative cash flow when you spend more money than you bring in. But with those numbers in a constant state of flux, you may wonder why it’s important to keep a constant focus on this key indicator.
Knowing your cash flow will keep you in control of finances, enabling smarter business decisions. It also allows you to predict how much money you’ll have on hand in the future so that you can prepare for lean(er) times.
Here are some tips on managing cash flow that will keep you up to date on your company’s financial health:
Hire an accountant or use software such as QuickBooks to start monitoring your monthly cash flow. Calculate everything that goes into your bank account and everything that withdraws from it. You’ll start seeing patterns once you have a few months of data.
See where you can cut costs
If your cash flow isn’t where you want it to be, analyze your expenses to identify where you can cut costs. Are you still using all those subscriptions you’re paying for? Can you reduce payroll hours? Is there any equipment sitting around that can be sold? Can you renegotiate your lease?
Stay on top of invoicing
Your business relies on having clients pay you on time and in full. But, as a small business owner, it can be easy to procrastinate on generating invoices instead of sending them out immediately. Prioritize billing as soon as possible and follow up on clients who haven’t paid within the agreed upon timeframe.
Offer discounts for early payments
Another way to secure cash flow is by offering clients an early payment discount. For example, you can set 30-day payment terms and offer clients a 5% discount if they pay within the first five days. They’ll appreciate the savings, and you’ll get money into your account faster.
Consider financing options
If you anticipate having negative cash flow, you may want look into financing options like a line of credit, a loan, or investors.
When you’re first starting your business, you might spend more money than you bring in for a few months. After all, it’s expensive to pay for necessities like equipment, software, payroll, and an office.
As your company grows, you might still encounter times when you’ll be in the red, but that’s not somewhere you want to stay. TAP Financial Partners can help you identify financing options that will help you improve your cash flow and grow your business. Get in touch with us to learn more.