Whether you are in rapid growth mode or not, it’s the flow of cash that makes your business hum (and allows you to sleep at night!) You invest a certain amount to produce products and services, and then you sell them at a price that provides a reasonable profit. Reasonable profit keeps your business running, AND allows your customers to see enough value that they buy from you over and over. Unfortunately, profit is not the same as cash – profit doesn’t matter if there are not enough bucks in the bank to make payroll or pay your suppliers. Here are some strategies you can use to speed up the flow of cash available to grow your biz.
Speed up cash inflow
- Ask to be paid sooner
- Provide discounts on invoices paid on time or in advance
- Send reminders several days before the invoices are due
- Specify an invoice due date instead of “in 30 days”
- Align your billing cycles with clients’ payment cycles
- Invoice on time
- Invoice more frequently
- Build rapport with client’s Accounts Payable department
- Obtain deposits to cover up front costs on projects
- Reduce production cycle times
- Reduce errors to prevent rework (and higher costs)
- Improve effectiveness in sales(close rate and cycle time)
Slow down cash outflow
- Pay bills with credit cards so no cash outlay until you are paid.
- Avoid stockpiling inventory in raw materials and/or finished goods (that’s cash on those shelves!)
- Regularly evaluate your cost of goods sold. Note: this does NOT mean that you derail a good relationship with your suppliers to obtain a short term cash advantage. The maintenance of a reliable supply chain is important to the sustainability of your business!
Know your cash numbers
How closely do you manage your cash flow right now? Do you know your current balance, and your near-term sources and uses on a daily basis? Knowing your daily cash position is the first step to better cash flow – it’s the only way you will be able to see the impact of decisions you make. Look at your business accounts every day, or request a daily report from your bookkeeper or CFO, including the pending sources and outlays. Also include a projection of your cash inflow for the next month.
Yes, in a world where electronic transactions have surpassed the exchange of dollar bills and even checks in some industries, cash is still king. It still rules your business, so you’ll fare better if you take steps to make cash your friend.