When it comes to running a business, it’s tempting to focus on how much your sales are growing, or where your profitability is currently sitting at. Though both are undeniably important, they often mean that another element of running a business gets overlooked – cash flow. You might have a steady stream of sales and high profit margins, but if cash isn’t flowing in quickly enough to cover business expenses, you’re going to struggle to stay afloat.
Don’t Ignore Cash Flow This Quarter
Regardless of business size, type or industry, a healthy and steady cash flow is key. When your cash flow is healthy, your business can cover daily expenses reliably – such as rent, payroll, bills and supplier invoices – and ensure everyone gets paid on time without stress. It also makes it easier to grab opportunities when they arise.
With cash on hand, you can invest in growth, buy equipment or take advantage of supplier discounts, without having to worry about a payment coming in first. It’s also helpful when it comes to weathering storms. Whether it’s a seasonal dip in sales or an unexpected expense, strong cash reserves act as a buffer, keeping you afloat until things pick up again.
If you do ignore your cash flow this quarter, your business could be at risk. Letting your cash flow slow and simply hoping everything resolves itself is one of the riskiest mistakes a business owner can make. It often leads to missed payrolls and supplier issues, which can damage relationships and trust, and lost opportunities. You’re also putting your business at risk of debt, which mounts quickly if you’re having to rely on credit and loans to cover cash flow shortfalls.
Here’s How to Give Your Cash Flow a Boost
Don’t Settle for Invoicing Delays There’s always going to be clients that pay invoices late, but that shouldn’t be the default of what your business expects, and it shouldn’t be because of your actions. If you want cash to flow into your business, you need to send invoices as soon as possible. If you delay sending invoices, you can expect delays in payment. Send invoices immediately after delivering a product or service, and use invoicing software to send reminders and track payments. It’s also a good idea to set clear payment terms – for example, 15 or 30 days after the invoice has been sent – to give clients a deadline.
Make Sure You’re Managing Your Inventory Correctly Inventory is money sitting on a shelf; until someone buys an item, you’re unable to access that money. If you’ve got excess stock that isn’t moving, your cash is trapped. It’s a good idea to review sales data regularly to identify slow moving products, which will give you an insight into which products you should prioritise stocking. Streamline your purchasing decisions by buying more of what sells quickly, and less of what doesn’t. This ensures the majority of inventory on a shelf will be sold quickly, putting cash in the bank. If you’re struggling to get rid of stock, run promotions or bundle offers to encourage sales and free up cash.
Keep on Top of Unpaid Invoices Unpaid invoices will hold your cash flow back in a big way. You’ve earned the money, but it hasn’t reached you yet, which means you’re out of pocket. You can give your cash flow a boost by consistently following up with overdue accounts, such as sending a friendly reminder to clients that an invoice needs to be paid. You could also request deposits for large projects or new clients upfront, which ensures only a percentage of your cash flow is down until the project has been completed and paid for. Create a system where someone on your team is responsible for following up on invoices weekly, not just when cash gets tight.
Agree Terms with Suppliers That Work in Your Favour Don’t assume that suppliers aren’t flexible, because many of them are, especially if you’ve been working together for a while. By negotiating payment terms that work for you, you can ease the strain on your cash flow. For example, you could ask for extended payment terms to give you longer to pay and negotiate discounts if you buy in larger quantities. Put time into developing strong relationships with your suppliers and make sure your partnership is one they value, so they’ll be more likely to agree on terms that work for you.
Create Recurring Revenue Streams You Can Rely On There’s no guarantees when it comes to selling one-off products; even with data analytics, it’s impossible to say how much money your business is going to make. This makes your cash flow unpredictable. But, if you create recurring revenue streams, you give your cash flow a little bit more stability. For example, you could create subscription services for products customers use regularly, or offer retainer contracts for ongoing services. With recurring revenue, you’ll know what’s coming in and when, which helps you to plan ahead.
Boosting your cash flow is about giving your business financial freedom. Hoping that clients will pay on time, or that sales will magically increase, is a risk. By taking control, you’re not just boosting cash flow this quarter, you’re building a more resilient, sustainable business for the long run.
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When it comes to running a business, it’s tempting to focus on how much your sales are growing, or where your profitability is currently sitting at. Though both are undeniably important, they often mean that another element of running a business gets overlooked – cash flow. You might have a steady stream of sales and high profit margins, but if cash isn’t flowing in quickly enough to cover business expenses, you’re going to struggle to stay afloat.
