A healthy cash flow means that a business is taking in more money than it is spending and is one of the strongest measures of a company’s financial health. Cash flow represents your business’s liquidity, which equates to great things like being able to pay your bills or invest in operational or technological improvements. A healthy cash flow is tremendously valuable in both the good times and during economic uncertainty. It gives you options and creativity to invest in growth and stability that your less-liquid competitors simply don’t have at their disposal.
Read “How to Create a Profit and Loss Statement.”
Cash flow is important in both good times and bad, but is far more critical (or at least, top of mind) during economic instability. Early on, many business owners are faced with cash flow issues as they navigate the nuances of building a healthy company.
Maintaining a healthy cash flow starts with learning how to navigate the pressures and demands of running and growing your business. And there are relatively simple ways to improve cash flow that do not require a major overhaul to how you run your business.
Here are a few great ideas:
Start sending invoice reminders 20-30 days ahead of the due date. This is a gentle reminder that may encourage customers to pay early. Consider offering a 5% discount or other incentives for early payment. For your recurring customers, offer automatic payment options that ensure invoices are paid in full and on time.
Audit your monthly expense to determine if you are spending money on software subscriptions or other tools and services that you are not using or are not providing real value. If you like the service but aren't using it to a worthwhile degree, request to downgrade your subscription or try to negotiate with the supplier for more affordable rates via a loyalty program or long-term contract.
Motivate your customers to buy quicker or more frequently by offering bundled deals that can result in larger purchases. If you offer service contracts, once again you can offer discounts for those who pay in advance. Consider limited-time deals that spur customers to action and provide a strong revenue stream into the business.
Work with your current suppliers on more advantageous payment terms. By extending your Net 30 payables by 15 or 30 days, you can hold on to your cash for longer. Negotiate other terms with your vendors that might make better sense to your unique circumstances.
Selling gift cards is a great way to both provide value to your customers and bring an influx of immediate cash into the business. To make gift cards more enticing, consider attaching a discount to the deal, like a $100 gift card for $90. A prepaid loyalty program is also a great way to honor your customers while benefitting from upfront cash.
“Help Customers Stay Connected and Loyal to Your Business.”
You know those products that are gathering dust in your showroom or warehouse? Unload them because they are burdening your shelf space, your merchandising, and your cash flow. Consider flash sales or clearance deals that will generate extra revenue and rid you of that idle inventory that is taking up valuable space.
These approaches to maintaining a strong cash flow are really just smart business tactics that will support the health of your company in any economy.