Tips for maintaining positive cash flow in your business
Did you know you could be running the most successful business but if you don’t have positive cash flow, you could end up closing your doors?
Cash is king and if you don’t focus on it, you could run your business into the ground unintentionally. I see it all the time at Valley Business Centre – Bookkeeping & Payroll. The good news is, there are ways to maintain positive cash flow and keep your business thriving.
Why is Positive Cash flow Important?
Without positive cash flow, your hands are tied. You may not be able to stay on top of supplies and materials needed or you may fall behind on your accounts payable, ruining your business’s reputation.
With positive cash flow, you have money on hand to cover your bills as well as emergencies. Just like we need an emergency fund in our personal lives, your business needs one too. What if your business has a crisis and you have to cover an insurance deductible or buy a piece of equipment fast?
Without positive cash flow, you could find yourself in a bind with nowhere to turn except bankruptcy or closing your doors. Neither option is good, which is why using proper bookkeeping services is crucial.
7 Ways to maintain positive cash flow in your business
Streamline your invoicing procedures
Don’t make invoicing an afterthought and don’t think your clients will pay you without an invoice. They won’t.
Set a specific time and date every week or even more frequently to do invoicing. If you don’t have time for bookkeeping and keep putting it off, hire a professional bookkeeping service to ensure your invoices are sent out regularly.
If you operate on a net 30 basis, you will likely go at least 30 days without payment with a few rare exceptions. The earlier you send the invoices out, the earlier you’ll receive the money.
Watch your spending
Just like you must watch your personal spending, the same is true of business spending.
You can’t have a positive cash flow if you’re constantly spending or buying things on credit.
Be honest with yourself about what you can afford. Even if you have big dreams for your business, jumping in without looking at your budget and determining what you can afford can be detrimental to your business’s bottom line.
Offer discounts for early payments
When you send out invoices, encourage your clients to pay early by offering an early payment discount. It doesn’t have to be much – even 5% may entice them. If you receive the money earlier, you’ll have greater cash flow and can keep your business running without a hitch.
It’s not so much about the discount, but rather how long you have to be without your payments. Giving that small discount can offset the cost of waiting for payments and letting interest accumulate on your own debts.
Keep track of accounts receivable
Bookkeeping is time-consuming and you may even think it’s pesky, but it’s the bread and butter of your business. If you don’t stay on top of your accounts receivable, accounts will slip through the cracks. Before you know it, you’ll have invoices that are 60 – 90 days past due.
If you don’t have the time to follow up on bills approaching their due date or are past it, hire professional bookkeeping services to do it for you. The cost will be well worth it because you’ll have greater cash flow with regular follow-through on your accounts receivable.
At Valley Business Centre – Bookkeeping & Payroll, we use Rotessa to stay on top of accounts receivable.
The app connects to your customer’s bank accounts (with their approval) and after you provide services, you can automatically withdraw the funds. It takes the guesswork out of when you’ll receive payment and keeps you on top of your cash flow.
Manage your inventory
Staying on top of your inventory is another great way to keep a positive cash flow. If you have old inventory, get creative. Offer steep discounts to move it. Even though you’ll earn less than you hoped for the merchandise, some money is better than none.
Keep careful records about what did and didn’t sell and consider switching out inventory to optimize your cash flow.
Save an emergency fund
Don’t assume you’ll always have positive cash flow. You won’t. Instead, prepare for the times that you don’t.
Save an emergency fund and keep it somewhere that you won’t touch it. When times are tough and accounts receivables get too high, you know you have the emergency fund to rely on so you can get through the tough times without too much hassle.
Let your cash earn money
Don’t let your cash just sit there. It’s not enough to say ‘I have positive cash flow.’ Instead, you need to make that money work for you. Letting it sit only wastes money.
Even if you stick the money in a high-yield online savings account, it will earn interest and grow when you don’t need it. When you do need it, though, it will be there.
Final Thoughts
Positive cash flow is the backbone of any business. Don’t let your cash flow get negative for too long or you’ll end up with a negative reputation with vendors, have a hard time getting loans, and may not even be able to increase your inventory.
At Valley Business Centre – Bookkeeping & Payroll, we’re happy to help you learn how to maximize your cash flow. Most of our clients came to us with cash flow problems and once we sat down and showed them where they needed to make changes, their business turned the corner fast.
With positive cash flow, you’ll see a tremendous difference in your business.
