Cash Flow is the Entrepreneurs Lifeline

By Dan Boudreau

Cash flow is a business’s oxygen. With cash, a business breathes, without it the business dies. Knowing this, smart business owners keep one eye on the bottom line at all times.

When trying to solve a cash flow shortfall, many owners first inclination is to try for a bank loan. While some situations call for debt financing, an injection of cash is not always the best solution. It can be difficult, if not impossible, for a new business to get a loan. And even when it’s easy to acquire debt, it’s always healthier for owners to learn to manage cash flow effectively without it.

Here are a few things entrepreneurs can do, other than borrowing, to help keep the bottom line in the black.

1. Forecast cash flow. A cash flow projection will show all revenues flowing into the business bank account during the month in which deposits are anticipated, and all expenses debited during the month in which they are expected to be paid. Once you’ve subtracted expenses from revenues, the hope is that there is still money in the bank at the end of each month. A well-planned financial projection is crucial for managing cash flow.
2. Invoice promptly. Get your invoices into the hands of clients in a timely way. If your clients happen to be using email or the Internet, FreshBooks offers an efficient invoicing and tracking solution at www.freshbooks.com.
3. Collect receivables promptly, and clarify when payment is due. Waste no time contacting late clients. A friendly reminder is usually enough to get your invoice bumped to the top of the shuffle.
4. Get retainers or advances where possible, and accept immediate payment whenever it’s appropriate to do so. Some businesses deal entirely in cash, which eliminates the risk of having to invoice customers and the cost of delayed payments.
5. Price profitably. Maintain prices at rates that enable you to pay expenses and earn a profit. If your business continually starves for cash, you might need to reduce your cost of goods, your expenses, or increase your markup percentages.
6. Schedule major purchases for cash-rich times. Your cash flow forecast will enable you decide if and when purchases should be made. If you’re using a spreadsheet, it’s a matter of entering the prospective expense into the appropriate month of your cash flow and you will immediately see the impact on your bottom line.
7. Plan the timing of your supplier and vendor payments. While stretching payments beyond the agreed terms is sure to erode your credibility and spawn grumpy suppliers, it is certainly fair practice to pay bills when they are actually due rather than ahead of time. Early payments are an admirable pursuit destined to make you a preferred customer with any seller, but not advisable when your business needs the oxygen.

The real bottom line is that business owners must do whatever it takes to sustain cash flow. Most small or home-based business owners will take the first hit when there is a shortage of cash. Along with knowing your business’ bottom line, it’s imperative that you also have a firm grip on your personal expenses and, if possible, that you be the cushion and take less pay from the business during those months when cash is scarce.

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“Dan Boudreau is President and CEO of Macrolink Action Plans Inc and the RiskBuster Business Plan Oasis at http://www.riskbuster.com Writing your own business plan can be easy, fast and fun! Instantly download a free copy of Dan’s popular fast-track business plan template, The Shell, when you subscribe to the RiskBuster Oasis Insider at http://www.riskbuster.com ”

 

 

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