When it comes to running a successful business, profitability is one thing—but cash flow? That’s a whole other ballgame.
You see, even though a business might be profitable year after year based on financial statements, it may experience considerable cash flow problems throughout the year. And the problem with this is that every hour you spend putting out “cash-flow fires”, is an hour you’re not spending working with customers, selling your product, and building new client connections. In other words, it keeps your business stuck.
Let’s take a look at a few ways you can better manage your cash flow, so you can grow your business, instead of spinning your wheels.
Create a cash outflow budget
With a regular budget, you track WHAT you’re going to spend on different items. But with a cash outflow budget, you’re tracking WHEN you’re going to spend, so you avoid any billing surprises.
For costs on a fixed schedule, like salaries or tax payments, this is simple. But, it’s likely that you have several costs that work on a more flexible payment schedule—and you can actually use this to your advantage. Here’s an example:
Many businesses pay invoices within a few days of receiving the bill, even though they have 15 or 30 days to make a payment. By timing your payments toward the end of the billing window, you give yourself more time to build your cash balance and avoid needing to borrow or access credit lines. Your payments will still be on time, and you’ll save on interest charges and fees that you can put towards growing your business.
Evaluate your supplier relationships
With the recent economic challenges, many suppliers are more flexible with payments and payment terms. And this can help if your income fluctuates.
Find out if you can make advance payments at a potential discount, for when you’ve got the cash on hand. That way, when times are slow, you’ll be covered (and have potentially saved a little by pre-paying).
It’s also important to know which suppliers are inflexible on terms, so you can make strategic choices about partner relationships. Stay on top of any changes to your billing terms, especially if they’re going to put more pressure on your own financial situation.
Tighten up your payment terms
One basic element to cash flow management is making sure you get paid before you start making payments. Almost all business owners have to deal with delinquent clients at some point—and that’s why at some point, we all must get firm on our payment terms.
Come up with stronger terms for your business, or put more effort towards chasing down late payments. (Just make sure the work you’re going to put in to get that payment is worth the time and effort.)
Drop your bottom 10% of clients annually
You likely already know which clients cost you more to service than the contract is worth, or which ones consistently go delinquent on payments, or just plain drive you crazy! It might be time to let them go.
Think about it… by freeing up hours you would spend chasing down problem clients, you could find a more profitable client.
It might sound like a dramatic move, but it’s a strategic one that will steer you towards fewer headaches, higher profits, and more time to grow your business.
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One of the smartest ways to increase your cash flow is by creating a product once, and then getting paid for that product again and again, and again. I’m hosting a free call next week on this exact topic.
It’s called “Info-Publishing Secrets: Cash-In on What You Already Know“, and it’s happening Tuesday, July 26, at 8pm ET. Reserve your free spot here now.
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© 2011 Ali International, LLC
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