5 must-do cash flow tips for your business

September 15, 2023
September 15, 2023

Cash is the fuel that makes your business run each day. Running out of cash will have dire consequences for you and your business. On the other hand, if you have a significant amount of cash, you may not be using it efficiently and missing out on opportunities. Here are five tips to help you manage your cash flow and grow a sustainable business.

1. Price correctly

No amount of sales volume and marketing can fix the cash flow problems from products or services that aren’t profitable. Make sure you have gone through your list of products/ services and looked at: 

    • How much you sell them for
    • How much they cost to produce (materials and wages)
    • How much you need to sell to cover your overhead.

Ongoing, make sure you are reviewing your Profit and Loss statement to ensure profitability targets are being met.

2. Review accounts receivable and accounts payables frequently

Profitability is good but if payment isn’t being collected then it is of no use for your business. Maintaining an accurate accounts receivables listing and reviewing it frequently is vital. When an accounts receivable is beginning to get old, follow up and set up a payment. Often making a phone call and remaining friendly can help speed the process for the collection of old accounts receivable. Your accounting system can easily send out customer statements which will help remind customers they have a balance owing.

When it comes to accounts payable you want a system that allows you to always know what you owe so there are no surprises. Make sure you are paying your vendors on time and building relationships with multiple vendors. For major purchases make sure you get quotes from multiple vendors. As vendor relationships grow,  ask about loyalty discounts or better payment terms.

3. Cashflow forecast

A cash flow forecast will help you determine times during the year when money may be tight. Recognizing these times allows you to plan accordingly. A cash flow forecast should include your expected cash inflows, cash outflows, and the beginning and ending balances of your bank. You don’t need it to be perfect (if it’s perfect you’re probably wasting valuable time!). Expect it to be wrong for the first couple of months, but the more you update it, the more accurate and useful it will become. 

4. Automate payments

If you are unable to collect cash up front or have a recurring service, set up automatic payments with Rotessa or your credit card processor.

By setting up automatic payments you will bring cash in the door when it is collectible instead of when your customer gets around to paying you. Take control over when you collect cash for the products/services you deliver to make sure you get paid on time! Your customers also won’t have to remember to make a payment or go through the hassle of initiating a payment, making their life easier.

5. Maintain a cash reserve

If you have ever experienced a cash crunch you know it isn’t fun! The stress can lead to poor decision making, further compounding your problems. Having a cash reserve in place (minimum of two months of expenses) will help you avoid the stress from a cash crunch. This will give you one of the biggest assets – time. Having time will allow you to take the necessary steps to avoid a cash crunch.

Bonus: Tax estimates

One of the larger expenses in your business will be taxes.  Make sure you are getting frequent tax amount estimates and setting the money aside so that you are ready for tax time. If you aren’t making instalment payments, it can help to have a separate bank account set aside for taxes. This way you can move money into this account monthly.

Happy Business Building!