Prevent Business Failure by Increasing Your Cash Flow

February 12, 2013 · 4 comments

in Marketing Ideas, Tips

Cash flow is the blood that keeps a business alive. If there is a leak or blockage in the flow, you won’t be able to supply enough funds to all the vital aspects of your business. Poor planning to your finances will lead to bigger problems that can affect your entire business. According to Small Business Administration, as reported by Inc.com, insufficient capital is one of the leading causes of business failure.

That is why leading companies are constantly looking for ways to improve their cash flow and reduce their reliance on high interest lenders. Below are advice on how you can help shore your financial problems.

Plug up any leaks

The first step is to look for any leaks. A leak would be any unnecessary expense or a wasteful use of monetary assets. For example, unless a membership to an elite organization or golf course is bringing in worthy contacts that generate sales, the monthly or annual dues would be considered a leak in your cash flow. There are always ways to reduce or eliminate expenses without sacrificing quality, but sometimes it takes an outside audit to find them.

Almost every company is facing intense global competition due to the vast capabilities of the internet, which means they are willing to negotiate better terms or offer small discounts to secure your business and future loyalty. A small 1-2% discount can really add up over the course of a year and if you make those same arrangements with multiple suppliers, you could end up saving hundreds or thousands.

Read Inc.com‘s three more suggestions on how you can plug up the leaks in your cash flow by clicking here.

Remove blockages

The next step is to ensure that there are no blockages preventing cash from flowing in as quickly as it should. Make sure that there is an established method for preparing and sending invoices immediately upon completion, following up with a gentle and professional reminder notice, as well as a thank you notice or discount incentive for timely (or early) payment.

You can also ask a client to put down a deposit or make milestone payments throughout the course of a project. This way you have some cash upfront to handle expenses that occur before it is time to collect the final payment.

Create a cash flow reserve

It also helps to have a little extra money put aside in case an opportunity arises that you can’t afford to pass on. One suggestion is putting double the money you will need for yearly taxes in a separate account that will accrue a decent amount of interest. Only use that account to pay your taxes and watch it grow until you absolutely need it.

These simple techniques will ensure that you have enough cash flowing in to cover your expenses, as well as a nice cushion in case of a worthwhile investment or sudden need for expansion. Cash flow can make or break a business, so invest the time in ensuring yours is flowing smoothly.

For more sound advice on how you can moderate money coming in and out your business, read Entrepreneur‘s “How to Better Manage Your Cash Flow” and Inc.com’s “5 Ways to Improve Cash Flow.”

Author Bio:

The article is posted by Gerwyn Wallto. You can find more articles on a Invoicing for Small Businesses website.

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{ 3 comments… read them below or add one }

Heather Stone February 19, 2013 at 2:30 am

Hi Gerwyn,

Maximizing cash flow is a simple but important concept for entrepreneurs. If you're attempting to grow your company, especially using bootstrapping without much in the way of external financing, this can be an extremely valuable approach. Thanks for the post and for sharing it on BizSugar.

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Mys Palmer February 19, 2013 at 3:06 am

Great find over on BizSugar! I think it's honestly the hardest part of managing a small business. I call the solution products that earn while you sleep. Creating smaller products that although area at a lower entry cost, can be fulfilled without taking much effort after development. It's how I find my cash flow can keep moving. Thanks for the tips!

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Gerwyn Wallto February 20, 2013 at 1:17 am

Hi guys, thanks for sharing!

Business Cash Flow is important for any business, especially for startups. Some companies increase their recurring expenses with long term contracts and can’t get out of them when cash is low. In some situations they can’t get their clients to pay on time. These are just some of the obstacles but some companies do overcome them and become successful.

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