How To Maintain Healthy Cash Flow
Posted on 7th December 2021 at 14:06
Managing cash flow is essential for any business, but it is especially important for smaller businesses. Without the safety net of extra resources to stay afloat in slower times, smaller businesses need to keep a close eye on their finances.
Why is cash flow so important?
Cash flow is the movement of money flowing both in and out of your business – in an ideal world, the flow of your income should exceed your expenses. The key to cash flow is the movement of money – problems usually arise when you have a steady flow of expenses going out, but your flow of revenue has run dry.
Cash flow is what keeps your business living and growing. Without it, your business is likely to take a nosedive.
Maintaining healthy cash flow ensures that you can reinvest back into your business and keep things moving. Keeping on top of your finances is never easy, even less so when you’re a smaller business. As someone who has been there, I have some advice!
Keeping airtight records can make all the difference between a business that succeeds and one that fails.
It’s no good just guessing and estimating ‘roughly’ where you stand, expense-wise. To maintain a positive cash flow for your business, you need to ensure that you are keeping records not just of monthly recurring expenses but also any ad-hoc expenses.
Be strict with yourself about updating your expense records as you go along – if you put it off the task is likely to become overwhelming! Keeping accurate records can also help you spot potential shortfalls ahead of time so that you can adjust your strategy if needed.
Knowing your costs will make sure that you are able to estimate roughly how much you will need to keep your company afloat if business ever fluctuates. All businesses can go through times of uncertainty – it makes good sense to have a safety net!
Send off your invoices in a timely manner and as soon as you are able – this way you won’t end up waiting longer for customers to pay you. Make sure you update your records with your incoming payments so that you can check them against your expenses!
It’s also a good idea to send invoices for recurring clients at roughly the same time each month – this way you’ll get into a routine and be less likely to put it off! Streamline the process by creating templates for invoices before you need them. You could also create a follow-up email process to use in the case of outstanding payments.
Sending invoices at regular intervals will also make it easier to see if there are payments that need to be chased. This will encourage a healthy (and hopefully steady) movement of cash through your business.
At least in the beginning, take steps wherever you can to minimize your expenses. Some subscription services offer hefty discounts if you purchase for a full year, while others will allow you to have bundle discounts on multiple services.
It’s always worth asking to see if you can get a discount for being a repeat customer – if you don’t ask, you’ll never know!
As important as it is to get new clients on board, it’s just as important (if not more so) to check in regularly with existing clients and ensure that they are happy. Perhaps discuss where you could help them further or see if there is anything else they need. Getting repeat business from clients is an effective way of making sure your business is sustainable in the long term.
Taking good care of your clients may also potentially lead to more business. If they have a good relationship with you, they may recommend you to others. Which brings us to…
If keeping existing clients happy is great for the sustainability of your business, then getting new clients is great for the growth of your business.
One of the best ways of maintaining healthy cash flow is by utilizing the clients you already have to gain new ones.
Ask your existing clients if you could have feedback or a testimonial for your website. These testimonials will hopefully make you look both appealing and trustworthy to potential clients. Most people will be happy to provide you with a few sentences about your work and it will prove invaluable in expanding your horizons to reach new people.
Be wary of offering large discounts – while this may attract customers in the short term, it may end up costing you more than it earns you.
You don’t have to offer the lowest price out there – you don’t even need to offer lower prices than your direct competitors! Just ensure that your product or service is quality, and don’t do yourself a disservice of offering rock-bottom pricing.
Carefully consider how you price your product or service. Price your product too high and you’ll turn off customers from the start. Price your product too low and not only will you impact your positive cash flow, but customers may assume your product is poor quality.
This will be your financial business partner who will help make sure that your company is on track - so choose wisely. A good accountant will also ensure that your self-assessments are sent off on time and keep you within your budget.
A good accountant will not only ensure that you are maintaining a positive flow of cash through your business but also save you the time and stress of rushing to finish your self-assessment before the deadline!
It’s a good idea to keep a good flow of communication between you and your accountant – set up regularly meetings to keep on track and dedicate time to troubleshoot any potential issues.
Maintaining a healthy cash flow is one of the most difficult parts of running a business, but with careful planning, you can avoid running into the red zone! Preparation is key – have solutions and back-up plans before you need them. Once you get into the habit of closely monitoring your finances, you’ll find it easier and easier to maintain a positive cash flow.
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