Here are a few tips to help you row your cash flow boat successfully:
1. Determine Your Breakeven Point
You should know when your business will become profitable, not because it will affect your cash flow — because it won’t — but because it gives you an early goal to strive for and a ready-made target for projecting future cash flow. Negative cash flow and negative profits make for a grim combination. Focus your efforts on managing your cash flow with an eye toward reaching that moment when you realize your first profits.
2. Focus on Cash Flow Management, not Profits
This may sound contradictory to #1, but it’s not. Use your breakeven point as a benchmark. After you reach breakeven and your business is profitable, you still need to manage your cash flow, of course. You have reached another stage of your business’s life.
3. Maintain Some Cash Reserves
You will have cash shortfalls. Your business’s very survival may depend on how you maneuver through those shortfalls. If you start with some cash in your bank account, it will be easier to focus on cash flow and you won’t stress about the shortfalls.
4. Use a Cash Flow Worksheet
5. Collect Receivables ASAP
Keep net-30 and net-60 terms in contracts to a minimum. If necessary, delegate the task of keeping an eye on receivables and contacting customers periodically to collect payment to a trustworthy, persistent member of your team.
6. Encourage Customers to Pay up Faster
Offer your customers early payment discounts and keep credit requirements strict. Establish a written set of standards for determining who is eligible for credit. Enforce those standards rigidly. You don’t want every customer walking in the door approved for credit.
7. Extend Payables as Long as Possible
In contrast, get the best deal you can on payables. Extend your payables to net-60 or net-90, if you can. Some suppliers charge late fees, however, so make sure you pay on time.
8. Boost Sales With Creative Incentives
Creative ways to quickly boost sales might include sponsoring a contest, hosting a customer appreciation event, offering referral incentives, or taking your employees on a publicity tour.
9. Designate a Cash Flow Monitor
Assign the task of monitoring cash flow to a trustworthy employee. Have that person inform you when you reach a certain threshold.
10. Keep cash flow spreadsheets in the cloud at sites such as Dropbox or OneDrive so you can access them from anywhere, and use professional accounting software.
Project future cash flows based on history and sound financial data. It takes the guesswork out of it, and you’ll sleep better at night.