Cash flow is the life blood of any business says Paul Haarman. If you do not have enough cash in your pocket to pay employees, buy inventory and make critical investments, it does not matter how profitable your business is – you will fail. And if you do manage to survive and achieve some sort of success, cash flow can prevent you from enjoying that success and moving to the next level.
As a business owner, there are many things beyond your control that impact your bottom line: consumer spending, weather conditions, changes in technology and an economy that goes through volatile swings.
However, there are 5 basic steps that most successful business owners know about or follow religiously to ensure they maintain positive cash flow.
1) Look at historical data:
Financial reports provide a lot of valuable information for any size business including cash flow trends by month or quarter over different time periods. This provides the ability to establish short-term and long-term goals for your business.
2) Streamline processes:
Every time a process is repeated or performed it costs money. The more times people have to perform a task, the greater the expense. In addition, if two employees are performing the same task – without realizing – each could be doing part of that task. By training employees on common tasks, you can reduce wasteful effort and increase cash flow.
3) Avoid hiring too many people:
If you hire employees for support functions like human resources, IT and accounts payable/receivable, etc., do not go overboard. Because these types of companies usually charge by head or employee; if you employ 10 people in those because they make great money (for example) but only need 5 to do the same amount of work, you are actually losing money by having those other employees on payroll.
4) Find areas where you can reduce expenses:
The easiest way to save money is to cut unnecessary spending. The first place many business owners look at is marketing says Paul Haarman. There are so many opportunities to spend money these days that few have fallen through the cracks. Cut any marketing that isn’t working or that you wouldn’t otherwise be doing if your financial situation wasn’t as dire as it currently stands. Focus on activities which will bring immediate results and payback in actual dollars instead of questionable future possibilities.
5) Negotiate for better deals with suppliers:
When looking at your company’s monthly financials, think about your bills from suppliers. Is there a way to reduce those expenses by asking for better deals? Are you comparing all of your costs to what you are being charged now or the original quote from that supplier?
Q. What about our credit line? Can we use that to bridge the gap?
- Your business’s credit is valuable and should be used only as a last resort. Just like any service your vendors provide you. The more financial strain they are under, the more difficult it will be for them to justify extending additional credit terms to you – even if your payment history has been excellent up until this point in time.
Q. What if we have been profitable in the past, but now it seems like we are just barely keeping our head above water?
- It is a sign that your business needs to get back on track and follow the steps listed here which will allow you to maintain positive cash flow going forward.
Q. What about those customers that owe us money? Aren’t we talking about increasing cash flow by stopping bad debts from getting behind the collection cycle?
- Yes – it is a cost of doing business and a necessary evil. However, you should always be cautious when extending credit to others because even if they have been prompt in their payment history with you – do not assume they will do the same with your other credit customers says Paul Haarman. In addition, there are many different ways for them to take advantage of you as a supplier including asking for discounts on past due invoices or quick payment discounts from vendors who want more business from them quickly at any price.
Cash flow is the lifeblood of any company. Slow or inconsistent cash flows can be a sign. That you have underlying operational problems which need to be address. Follow these 5 steps to ensure your business will always have enough capital on hand so it doesn’t miss opportunities. Because of a lack of money – especially if you are a young business just getting started and in need of cash for expansion.