How to keep your small business cash flow positive
It’s easy (and tempting!) to focus on profits when managing your small business finances. But it’s just as critical to pay attention to cash flow when planning for long-term business success. Negative cash flow can put your business's survival in jeopardy, or at least put a strain on your vendor and employee relationships.
First, what’s cash flow?
Cash flow, simply, is how much money flows in and out of a business. When you spend money for key business supplies and operations, money flows out of your business. When customers give you money for your goods or services, money flows in. Positive cash flow refers to having enough money to cover the necessary outflow of cash. For example, it won’t help you very much if you have a big contract that’s due to pay your company a hefty sum in three months if you don’t have enough cash on hand to cover your payroll until then. Planning not just for profit, but for cash flow, is crucial. So how do you make sure your business stays cash flow positive? Here are a few ideas:
| Planning not just for profit, but for cash flow, is crucial.
Use technology for payments
Waiting for customers to shop and pay for goods can be a challenge to positive cash flow. If your business offers services, outstanding accounts for services already rendered can be an issue. One solution to this potential cash-flow crunch is to automate as many payments as possible. Consider offering a subscription box model for goods, and a recurring payment charged to an electronic payment method for services. Keeping funds coming in at regular intervals makes planning for expenditures easier.
Focus on collecting receivables
Waiting for payment can put a real strain on cash flow. Get into the habit of requesting deposits from customers who pay on terms, and shorten the term to net-30 or even a net-15. Use the “more bees with honey than with vinegar” approach by offering discounts for prompt payment.
Consider a sale
If cash flow is tight, consider moving inventory that’s selling slowly by offering a discount or bundling it with your most popular offerings. Increasing cart size may help a temporary cash crunch. Beware relying on discounting too regularly, however, or your customers will come to expect it.
Get a small business line of credit
If you can qualify, a small business line of credit can make it easier to withstand any temporary cash flow hiccups. This technique works if you use it only sparingly. If you find yourself coming to rely on your line of credit too often, there are likely larger issues with your cash flow that you should address first before getting into further debt.
Make sure your prices are keeping up with inflation
Although it can be tricky to raise prices, especially if cash flow is tight, if your prices aren’t keeping up with inflation, you’re actually diminishing the value of what you sell. An item that is the same price today as it was a year ago is worth less in spending capacity than it was when you first set its price. Evaluate your prices and see if it’s time to nudge them up to stay on pace with inflation. If they aren’t, that may help you keep your business cash flow positive.
Don’t overlook tax planning when it comes to managing your cash flow. One unexpectedly high tax bill can derail your best cash flow management efforts. ComplYant allows you to manage your small-business taxes in one dashboard. Keep on top of tax deadlines with less stress and confusion.