Cash is the lifeblood of small business. No matter how great your revenue and expense situation looks on paper at the end of the year, if your cash isn’t coming in and going out at the right time during the year, you could find yourself in dire straights on a regular basis. The resulting gaps can be enough to cripple your operations and severely curtail your growth prospects.
So how can you improve your cash flow situation? Here are 10 steps:
1. Beginning with today, make a list of all cash in and out that you can expect for the next 6 months, as detailed as you can be.
2. Use the records from previous weeks and months to estimate the amount of your expenses, and when they occur each month (in the case of regular expenses), or when they can be expected to occur (in the case of irregular ones).
3. If previous experience can be used to estimate upcoming revenue and the timing of that revenue, then do it. If not, then go through all your current leads, clients and projects with a fine tooth comb, make an estimate of how much money you can reasonably expect from each (note: NOT what the contract or agreement was for, but rather what you can actually expect—the purpose of this exercise is to be as realistic as possible), and when you can expect to receive the money, as date-specific as possible
4. Reevaluate any previous forecasts made about upcoming marketing campaigns, investments in equipment, big-ticket purchases or new hires, and the expected costs and benefits thereof. Are those projections made last year still on target? Are they still reasonable? Should they be adjusted, up or down, and if so, why? And if so, what does that mean for forecasts going forward?
5. By now you should have a detailed and pretty exhaustive look at what the coming months have in store for your bank account. If it looks good, then pat yourself on the back (or say a prayer of thanks). If not, then move on to step 6…
6. Go through your expenses one by one, cut out unnecessary or wasteful spending right now, before it hits the bank (automatic payments can be particularly insidious in this regard), and seek to negotiate for more favorable payment terms with suppliers and vendors wherever possible. Don’t complain, just swallow your pride and do it. These kinds of new agreements can be precedent-setting for the future.
7. In the same way, go through your clients and see if you can get them to pay sooner than expected. Offer discounts for earlier payments. Offer a payment plan in installments. Offer extra goods or services that are low-cost to you, but high-value to them, such as a quality guarantee for an extra fee, some consulting services in an area you know well, or a new product/ service that complements their main purchase, for a lower price. This can incentivize them to do more business—now—with you, and get the cash flowing. This is also a good time to take a look at the simplicity and effectiveness of your billing system.
8. Reward loyal customers with a discount that incentivizes them to pay up sooner rather than later, and then offer those same customers lower prices, preferential treatment, and/or more choices from now on. Because there is nothing better for a business than loyal customers.
9. When met with new clients, size them up from the start to get a good idea if they will be loyal and lucrative for months and years to come, or if they are exhausting their life savings to do business with you. File their business cards accordingly. This will help you get a more realistic view on your cash flow prospects at any given time.
10. Perform these exercises on a regular basis. You will get better at it over time, and your estimates will get more and more realistic as you go along. You will also get better at sizing up your customers quickly, which will help you better allocate promotional and sales resources.
