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Boost your company's cash flow in five easy steps

Organizational systems for small businesses


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Most companies tout overall sales and net revenue to showcase their success. But if you really want to know the health and sustainability of a business, look at the cash flow — the real-time reflection of money coming in and going out.

According to the National Federation of Independent Business research, half of small businesses hold enough cash to cover one month’s costs, while 25 percent of small businesses can’t even make it two weeks. For most companies, that’s dangerously close to overlapping into the next payroll cycle and creating a series of issues. While challenges vary from industry to industry, one problem is universal: no business can operate with an empty bank account.

Four in 10 small businesses report cash flow challenges, so it’s highly probable your company already has or will struggle to make the payments necessary to stay afloat. Here’s what you can do now to ensure your business doesn’t languish later:  

1. Anticipate flow

Twenty-nine percent of failed startups attribute their downfall to an absence of cash. By assessing how income and expenses rise and fall throughout the year, you can safeguard your company and prepare for periods of boom and bust.

One effective method is to create a monthly cash flow report, compiling income and expense figures month-over-month for previous years. These findings can help forecast swings in cash balances to determine when to invest and when to save.

That said, if your business has a limited history, you can still build out projections by using industry data. For example, if similar businesses in your industry experience slowing in the summer and increased sales during the holidays, your company will likely follow a similar pattern.

2. Be assertive on receivables

It’s no secret that a business’ success relies on being paid for its goods and services. Poor invoicing and accounting practices can hinder your company’s financial health. Implementing an effective accounts receivable process can put you on the right track.

At a minimum, invoice clients in a timely fashion and regularly send balance-due reminders on past-due accounts. Ensure the invoice’s terms are clear, leaving no room for confusion. For large contracts, especially those that require an upfront investment, consider splitting the invoicing across a series of bills to help maintain a steady revenue.

Don’t forget you can also entice customers to pay early by offering a small discount. The two percent 10 net 30 rule is a common practice, meaning you offer a two percent discount for payments made within 10 days of invoicing.

3. Don’t ignore outflow

Lean on the golden rule when paying bills and paychecks. Just like you, other companies and individuals want to be paid promptly. It goes without saying that paying invoices on time goes a long way in building goodwill and creating healthy relationships with vendors, suppliers and employees.

If paying bills within the standard 30-day timeframe isn’t always feasible, ask your vendor about extending invoice terms. If a supplier is willing to push your due date out, that’s time your cash is working for you, not them.

Also, keep in mind that the two percent 10 net 30 rule is two-way street and could allow you to cut costs here and there. Those discounts may seem small but can add up to be a sizable savings.

4. Keep sales moving

Sales probably account for most of the your company’s income, yet no two sales are alike. While one large customer always pays in full and on time, a wholesaler may take months to settle its accounts.

The point is that a sale is a sale and it will always be important to the sustainability of your business, despite inconsistent payment methods. Focus your marketing efforts with that in mind. A marketing sales funnel can provide the framework needed to help maintain a consistent sales pipeline and steady stream of income, regardless of payment variations.

5. Monitor, review, and revise as needed

Even the best strategies can change as marketplace realities play out and that’s especially true with your company’s cash flow plans. Regular cash flow oversight and adjustments offer a steady handle on your business’ viability. Having clear insight into day-to-day finances can help aid conversations with your bank, especially when discussing cash management solutions, a business line of credit or other financing needs.

Your company’s prospects rely on what’s in the bank, so stay up to speed on what’s flowing in and out of your account — it will help in the long run.  

About Tanner Tweten: Tanner Tweten is executive vice president of business banking at FirstBank, one of the nation’s largest privately held banks with more than $18 billion in assets and 115 locations across Colorado, Arizona and California.Tanner started his banking career in 2001 and has held several leadership roles within the organization, gaining in-depth experience in treasury management, commercial lending, risk management and credit analysis.Tanner can be reached at tanner.tweten@efirstbank.com or 303-626-6718.

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