How To Have Consistent Sources Of Cash To Fuel The Growth Of Your Company
Updated: Dec 14, 2022
Make no mistake, your number one job as a business owner is not to die.
In human bodies, blood is what keeps us alive. In a company, the lifeblood is cash-flow.
That’s why your #1 priority should always be cash-flow.
Cash flow is the real cash, the money that you have on hand. It’s different from revenue or profit, which are numbers on a piece of paper. Cash flow is tangible: you can see it in your bank account.
With the money in your bank account, you’re going to pay for supplies, staff salaries (and your own if you can), and overhead costs; you will invest in technology, product or business development, etc.
I have no doubt you want to grow your business.
Well, growth requires cash.
The faster your business grows, the more cash you need. Plus, it may often make the difference between surviving and dying at times of turmoil – like the worldwide Covid19 situation.
So, do you have consistent sources of cash to fuel the growth of your company? This is a question that should always be in your mind.
If it sounds scary, rest assured. You don’t need to be an accountant expert to do well in business. But, you definitely need to know how to properly manage cash-flow, because if you do, then you can make decisions based on it and constantly adjust your direction to keep your company in good shape.
Let me be more practical.
First, you need to remember cash flow is comprised of 2 movements: money in (i.e. coming in from your sources of revenue) and money out (to cover your expenses).
Maintain A Cash-Flow Forecast File
Managing cash flow means you must always supervise those 2 movements: Maintaining a Cash-flow forecast file will help you do that.
Basically, it shows the forecast of your business cash (in and out) over the next 60 to 120 days sometimes more, so you can plan payments and expenses according to your revenue, and never run out of cash.
You don’t have to do it yourself; you can hire an accountant to do it for you. But you need to be always on top of it.
Speed-up Your Cash-in
Second, there’s one rule of thumb to follow to generate sufficient cash flow and fuel the growth of your business: get money in fast and get money out slowly.
So, you must come up with tactics to do just that. Here are some examples to speed up the cash-in.
Eliminate mistakes. It’s the #1 reason why clients are slow to pay. And incomplete orders, invoicing errors, or missed deadlines will drag down the entire process you want to speed up.
Send payment reminders at regular intervals –collecting payments is part of the job, so you should set up a process for it
Break down your clients’ invoices into several installments, so it’s easier for them to pay. Plus if you set a clear schedule of payment with them, it will also allow them to better manage their own cash flow (because they’re in the same situation as you and should apply the same rule of thumb).
Talk with clients to know why payments are delayed –and find a solution to satisfy both parties
Slow Down Your Cash-out
You can implement similar tactics to slow down the cash-out. For instance:
Don’t agree on payment terms before you’ve checked your cash-flow situation
Negotiate exclusive deals with suppliers, which should allow you more payment terms flexibility
Offer to pay your suppliers with monthly retainers, so you can negotiate better deals and easily manage your cash flow
Always pay by the agreed schedule so you build a reputation as a good payer (which will make it easier when you face challenging times and have difficulties paying). Plus. I’m sure you want your clients to pay you on time right? So, treat your suppliers the same way. Slowing down your cash out doesn’t give you the right to disrespect others.
Don't Worship Money, Focus On Your Customers Instead
There are many other ways to improve your cash flow.
For instance, you can increase the price of your services. You can also play with your volume and sell more at the same price. You can reduce the price you pay for your raw materials or overheads. Or you can reduce the amount of stock or equipment you have on hand.
As you can see, you have a lot of tools at your disposal to stay on top of your cash flow.