Cash flow management is one of the most crucial elements of a successful business. A common misconception is that cash flow is equal to profits. While they are two separate concepts, effective cash flow management impacts a company’s ability to achieve the goal of increasing profit.
Cash flow is the difference between the money coming into your business and the money going out of it. At its most basic level, it consists of 3 crucial components:
- Accounts Receivable
- Accounts Payable
Here are some tips to address these key components and improve the performance of your cash flow and your overall business.
- Keep Your Eye on The Prize
As mentioned above, cash flow is not equal to profits. However, effective cash flow management steers your business towards increased profits, which is the goal of any successful company.
It is critical to understand what it takes for your business to be profitable. Perhaps you aren’t in the black yet, but projecting a time in the future when you will be turning a profit is essential to controlling cash flow. It provides a goal and a vision as you move forward, creating a target that will sharpen the aim of your cash flow management activities.
- Incentivize & Control
One of the easiest ways to boost incoming cash is to reward your customers who pay on time or sooner, while at the same time keeping a close eye on your accounts receivable. There are a number of ways to create early payment incentives and gain greater control over your receivables:
- Offer discounts for early/quicker payments.
- Limit the number of customers eligible for credit.
- Maintain a strict schedule for contacting customers about payments due.
- Consider requiring deposits on some services to ensure cash input.
- Build Sales Volume
Another fairly quick way to increase cash flowing into your business is to increase your sales. You can do this a number of ways, including selling more products to existing customers, recruiting new customers, and implementing creative solutions such as subscriptions.
Try running a contest to bring in new sales, or asking for referrals from existing customers. Incentivize your employees to bring in more sales, and offer limited discounts to new customers buying products. Get creative, and you’ll be amazed at how quickly your sales could jump.
- Keep Track To Stay On Track
It cannot be overemphasized how important it is to keep track of your expendables. Be diligent about checking in on them as often as needed, whether that’s weekly, monthly or quarterly. Keep a detailed schedule of upcoming accounts payable readily available so that you know exactly how much cash output your business does on a regular basis.
- Maintain Cash Reserves
It is critical that you keep cash in reserve to handle emergencies or to cover gaps in your cash flow schedule. Keep in mind that it may be easier to borrow money before you need it, so consider taking out a line of credit to use as your cash reserve. A line of credit cannot be counted as a cash reserve on your balance sheet, but it can be utilized in a similar manner.
- Consider Enlisting Help
Managing cash flow is important for any busy business owner. Working with a trusted partner to keep track of and improve your cash flow could work out better financially for your business, as well as giving you more time to focus on other important tasks. Today, technology solutions such as cloud-based programs make it easier than ever to work closely with other companies, ensuring maximum efficiency and building relationships that benefit the business as a whole.
We help to improve businesses’ financial outlooks through the implementation of our unique two-stage debt recovery system. We keep the receivables pipeline flowing so that you can keep your cash flowing. Sign up for e-Tips from Rocket Receivables today to learn how we can help your business grow.