Cash flow is an essential part of any business venture, regardless of its size. It is a sign of a healthy business and a vital ingredient for growth. Whether you are running an established business or launching a start-up, maintaining positive cash flow is essential to ensuring a long-term success.
A positive cash flow is great for businesses, it represents your business’s financial health and the ability to face challenges ahead. It also indicates that you’re doing well. But how do businesses maintain a positive cash flow? Here is a list of 4 tips for maintaining positive cash flow in your business.
1. Spend your seed-money wisely.
Seed capital is the initial funding committed to starting a business. When launching a new business, it can be tempting to invest all of your money straight away to ensure your company gets up and running. It is wiser to resist this urge, however, because the ultimate success of your business relies on the ability to perform long-term.
If you funnel all of your money into its launch, you place your business in a vulnerable position later on when an unforeseen expense or risk emerges. In order to maintain positive cash flow when starting a new company, we advise you spend wisely and set aside a portion of your money for future expenses.
2. Track and keep all expenses in check.
If you have been spending on unnecessary things, you can literally find yourself up against a financial brick wall. Business expenses can quickly add up and cause issues when the time comes to reimburse them. To make sure you are not caught off guard by your expense volume at the end of the month, keep track of them at all times and be prepared to cut down on them if necessary.
Cash flow can become a big problem if you are spending more than you are earning. You might hide the fact for a while, but it will ultimately catch up with you. When that time arrives, you can find yourself in all sorts of financial trouble, as well as tarnishing the good name of your business. Hence, it is very important to always keep track of what goes out of your business financially.
3. Manage your receivables more closely.
Cash becomes cash when you can readily get your hands on it, it is yours alone and doesn’t have to be paid back. In order to maintain positive cash flow in your business, you should always make sure to manage your receivables more closely. This can be done by keeping a detailed list of what you are owed starting with the most.
Time is of the essence when collecting overdue money, you should contact receivables promptly and stick to a short payment time rather than a longer 60/90-day plan. Keeping on top of your receivables is essential to maintaining positive cash flow in your business.
4. Take steps to get paid faster by clients.
There are many products and services that you pay for on delivery or in advance. So why give your clients months to pay up? Asking for at least a deposit up front before any service is a great way to get paid faster and jump-start your cash flow. And if you establish the policy fairly and properly, it shouldn’t alienate good customers.
Unpaid invoices are known to be among the biggest cash flow killers out there particularly for small businesses, who are the most likely to suffer delayed payments from their business clients. If you are not proactive about collecting payments from your clients, you could quickly be on the way to a dangerous cash flow situation.
Only by managing your finances and keeping an eye on cash flow will a business be able to thrive.