Cash flow is the most important metric your business can measure because without it, your company cannot sustain itself for the long-term. Cash can be paper money, payments made with credit cards at time of service, or collections of accounts receivable when you extend credit to a customer for services rendered.
Think of cash flow as the money moving through your business over a certain time period. Money comes in through the sale of your service or product and flows out when you pay suppliers, rent, or employees.
So how can you have more money coming in and less going out? Read on to learn how to improve the cash flow of your business today!
Track cash flow on a weekly basis
Total the money you expect to bring in this week. Then, make a list of the expenses you must pay this week. Try to time the payments to your vendors and suppliers AFTER you collect payments from your customers.
Follow up on receivables
Reach out to your customers that have an outstanding balance with you. Find out if there is a reason they are not paying their invoices. If there is a dispute, resolve it as quickly as you can. If they are having cash flow issues, suggest a payment plan to get a partial payment.
You can also send out invoice reminders a few days before the customer's invoice is due. Most accounting systems can automate this task for you.
Negotiate payment terms
Stop paying for things with your credit cards and setup payment terms with your vendors and other suppliers. Establishing credit with your vendors and suppliers gives you more time to pay your invoices and builds your company's credit score.
Typical payment terms are Net 30, meaning the vendor wants to be paid within 30 days of the invoice date.
Review expenses
Take some time to analyze your company's spending over the last 6 months. Review the expenses on your P&L and understand how the cash is moving through your business using your cash flow statement. Determine which expenses are necessary and which ones you can eliminate. If the expenses are necessary, find a way to reduce the cost or find a less expensive supplier.
Build up your savings
While this may sound impossible when cash is tight, you have to expect the unexpected. It's okay to start small and build the habit of savings. As you have more money in your business you can grow your reserve for emergencies or other things that pop up.
These are a few ideas that you can implement to improve your cash flow today!
Please let me know if any of these suggestions resonated with you and leave a comment below.