Did you know that profitable, growing businesses regularly go bankrupt? One main reason is cash flow mismanagement. The typical business owner is not trained for, nor understands cash flow management. Most are missing this vital skill they need to achieve long term success and stability. There are many ways to get good cash flow. Here are four strategies to consider for your business.
Balance real cash with possible cash
The only money you have to spend is real cash, which is in your bank account. It is not future sales, accounts receivables, signed contracts or handshake agreements. Those are just possible revenue – they will show up with various degrees of certainty and in different time frames. This is a hard, on-going balancing act that most owners do not learn how to do, which is one of the primary reasons for the high rate of business failures.
Understand the financials
It cannot be stressed enough that having a working knowledge of your financials and keeping track of your cash flow is fundamental, paramount, essential and critical. Is the point made? Your business can be profitable and strapped for cash at the same time – an extremely stressful and usually avoidable situation.
Set up credit before you need it
There are times when you need increased cash flow. It can be for a positive reason – growth, new product line, higher demand for services, etc. It can be for challenging reasons – equipment breakdown, customer default on the substantial balance due, embezzlement (more common than you think), etc. It takes time and energy to get a loan. It is generally confusing and frustrating. The more lead time you have to work the system the better chance you have of being successful.
Learn to say “No.”
Not every sale is worth making. Sales do not always equal profit, sometimes a client or contract will cost the company money and decrease cash flow, rather than add to it. Before you take or turn down business be sure to do the math and answer these questions.
- What is your break-even point and ROI?
- Can your cash flow support the project until you get paid or will you need to borrow?
- Are the margins good enough to pay back a loan or debt?
- How can you negotiate a better payment schedule or terms?
You can make your balance sheet and income statement say anything you want them to. They can be, and often are, pure fiction. But, cash flow is the reality of your business, it is the facts. No matter what the numbers say, at the end of the day you either have the money to keep the doors open tomorrow, or you do not.