The following article is a guest post.
Every successful business, especially those that manage to stick around longer than a few months, understand the importance of healthy cash flow.
No matter how you look at it, cash flow is the one thing that will keep the business doors open if utilized properly and with mindfulness. And while small startup companies believe heavily in pushing sales, setting up marketing campaigns, and trying to increase the profit margin, they tend to forget about the cash flow. In fact, they notice the problems when the damage is already done.
The companies you see doing business year in and year out, most likely keep a very strict eye on cash flow transactions. And that is why they are able to maintain their success in the long-term.
Here are some of the ways they keep their cash flow efficient and healthy.
1. Zone in on Your Accounts Receivable.
Getting sales is exciting and seeing clients return might be even better. But none of this will actually mean anything unless the money is “flowing” in. In other words, a good system needs to be established where the client gets a price. This is followed by an invoice, and ultimately their payment for the product or service.
If you have the type of company that does contract-based work, such as construction, it will serve you well to get a down payment. With this down payment, the work can start at no extra cost to you, and the client provides the initial funding.
When the job is finished, you can request the rest of the payment, and be diligent in this regard. You don’t want clients to take their casual time with payments because you need to be in a position to handle your account payables if you are going to determine accurate profits.
2. Handling Vendors.
After you successfully implement a system your clients can follow with timely payments, it is time to focus on the cash outflow.
But unlike your system, you want to negotiate with the vendors for as much time as possible for two reasons. The first is that you don’t want too much pressure to make payments from your side. The second reason speaks to your clients who fail to make payments on time.
If you are dealing with cash for deliveries the it might also be worthwhile to have some systems in place to detect fake cash.
3. Set Up a Cash Reserve.
The first thing you will learn about business is that there are good days and bad days. Even the most successful companies run into situations where things get tight and sales drop, even with strong cash flow strategies in place. And if the sales aren’t dropping, clients aren’t paying, leaving you with bills that keep piling up.
Those successful companies survive these situations because they have a cash reserve, which is specifically for times when clients aren’t paying. See it as an emergency fund if you will, and when you start your business, try to have as much money in the bank as possible.
4. Always Have a Line of Credit as Backup.
In some cases, when the bad spell continues beyond your cash reserve, it’s a good idea to have a line of credit as a backup.
Naturally, this is not a lifeline you are going to use unless it is completely necessary. But having that lifeline can save the business. These are especially useful when unexpected surprises hit at a time when you can’t afford it.
5. Make Cash Flow Tracking Easy Through Technology.
It might not be an easy task to make sure the cash flow stays in a healthy place, but that doesn’t mean the “tracking” part has to be complicated as well. In fact, you want to make it as easy as possible to see where the money is going and where it is coming from.
With the right technology, you can start tracking the cash flow with pinpoint accuracy today. In other words, forget about the old-school ledger system if you want to make things a lot easier for yourself.