Cashflow 101
5 Simple Strategies to Keep Your Small Business Afloat
Cash flow. It's the lifeblood of every business. You can be profitable on paper, but if you don't have enough cash moving through your company to pay the bills, you're in big trouble. Keeping your business afloat isn't about having a massive bank account; it's about managing the flow of money in and out. Here are five simple strategies you can implement right away to help your business stay healthy and prepared.
1. Speed Up Your "Money In" 💸
The money your customers owe you is called Accounts Receivable. The faster you collect it, the better your cash flow. You're not being rude; you're just running a business!
Invoice Immediately: Send the invoice as soon as the work is done or the product is delivered.
Offer Early Payment Discounts: Give a small discount (like 2%) for payments received within 10 days. This encourages quick action.
Follow Up: Don't be shy about following up on late payments. A simple, polite email or phone call can make all the difference.
2. Slow Down Your "Money Out" 🐢
The money you owe to suppliers is called Accounts Payable. While it's important to pay your bills, there's no harm in being strategic about it.
Negotiate Longer Terms: When you work with a new vendor, ask for 45 or 60-day payment terms instead of the standard 30.
Pay at the Last Minute: Schedule your payments for their due date, not the day you receive the invoice. This keeps cash in your account for longer, giving you more flexibility.
3. Don't Let Inventory Drain You 🛍️
For product-based businesses, unsold inventory is just cash sitting on a shelf. It ties up your money and often loses value over time.
Embrace "Just-in-Time": Order inventory only as you need it, or when a customer places an order.
Get Rid of Old Stock: If a product isn't selling, offer a discount or a special promotion to move it out. It's better to get some cash for it now than to let it sit there collecting dust.
4. Create a Simple $Cash$ Flow Forecast 🔮
You wouldn't drive a car without checking the gas tank, so why run a business without knowing if you're about to run on empty? A cash flow forecast is a simple spreadsheet that tracks your expected income and expenses for the coming weeks or months.
Look at Your Calendar: Note your upcoming sales, recurring revenue, and upcoming expenses like rent, payroll, and large supplier invoices.
Identify Highs and Lows: This helps you see if you're heading for a cash crunch so you can take action before it's too late.
5. Build a $Cash$ Cushion 💰
Just like a good emergency fund for your personal life, your business needs one too. Set a goal to have at least three months of operating expenses in a separate, easily accessible savings account.
Start Small: Dedicate a small percentage of your profits—even just 1%—to this account every month.
Use It for Emergencies: This cushion is your safety net for unexpected repairs, a major client leaving, or a slow sales month. It provides peace of mind and keeps you from having to take on high-interest debt.
