“Cash is king.” As an entrepreneur, you might have heard of this old adage from a professor or an adviser. It basically explains the nature of cash flow and its importance to the overall fiscal health of your business.
Many successful businesses turn out to be flash in the pan because the amount of cash coming in is smaller than the amount of cash coming out. Companies that don’t practice good cash flow management may not be able to make the investments that they need, thus resulting in bankruptcy.
One of the reasons why most businesses overlook their cash flow is because they tend to focus more on profitability. Little did they know, you actually need to render positive cash flow in order to generate profit. Positive cash flow occurs when the cash funneling to your business (sales, accounts receivable) is bigger than the amount coming out of your business (accounts payable, expenses).
Here is a list of cash flow tips that can help grow your business’ profitability.
Read: 5 Mistakes Every Entrepreneur Must Avoid When Scaling a Business
1. Observe proper invoice management
The best way to deal with invoices is to create an effective strategy for generating, sending, and keeping track of them. One smart strategy is sending invoice reminders to your customers through email. You can send gentle reminders a few days before the due date, on the due date, and past the due date— if necessary. You can use accounting software like QuickBooks or Xero for effective invoicing.
Establish a firm policy with your customers that you charge penalties for late payment. Be explicit about this policy and mention it in your terms and condition. On the flip side, you can offer discounts for those who pay early.
You can opt for interim invoices too if you want your customer to pay you in a series of small recurring payments instead of paying you one lump sum. But make sure that you send a final invoice at the end of the project consisting of the complete work and what’s been paid for.
2. Increase revenues for a positive cash flow
Increasing your revenue can improve your cash flow. An obvious way to expand your revenue is to boost your marketing. Search Engine Optimization (SEO) can help your business stand out from the competitors and increase your customer base. It helps bring in customers who are actively seeking your service or product.
Furthermore, make sure that you add more services or products. By expanding a service or product line, you can increase your customers’ loyalty. Having a variety of goods enables your business to sell more to customers.
Read: 10 Proven Tips on Managing Cash Flow for Small Businesses
3. Consider raising your price
All businesses need to raise their price at some point in their entrepreneurial journey. Especially when the competition is tough, this cash flow tip can help you gain profit. However, before raising your price, it is crucial that you conduct thorough market research.
You need to know how much your competitors are charging their customers for the same product or service. Make sure that the price would compensate for the time and labor involved in the production. Most of all, plan a marketing strategy so you can raise your prices without ticking off your customers (e.g. discounts and bundle products).
4. Keep track of your cash flow expenses
Positive cash flow is not just about taking in more money; most of the time, it is also about reducing the flow of cash going out in the form of expenses, salaries, bills, and debts. Use affordable accounting software to track your cash flow expenses.
Look for ways to cut material costs and optimize your equipment. Instead of selling your leftover cardboard papers, why not sell them? Also, make sure that you track and measure the operational efficiency of your business so that you can maximize your available resources.
The most optimal cash flow tip to bring in short-term funds is to open a line of credit. For small businesses, a line of credit is essential because it supports financing for operational services. It is a good choice for a small business looking for ways to better cash flow.
Maintaining good cash flow is one way to see your business thrive and grow. Make sure that you implement these cash flow tips to your business and be prepared for the challenges that may come.
Read: Best Accounting Software for Small Businesses (Paid and Free)