Keeping cash flow healthy is so important for running a business. Positive cash flow ensures that you can run smoothly and have opportunities for growth.
But what do you do if you’re struggling with negative cash flow? How do you increase your business’s cash flow and get where you want to be? Here are 4 actionable strategies you can use to start moving in the right direction today.
1. Require an upfront deposit to improve cash flow
Whether it’s a small, one-off job or a long-term project, requesting a deposit formalizes your commitment to your client and helps ensure you maintain positive cash flow as you work.
Not sure how to ask for a deposit? Here’s how to do it.
Create a total-cost estimate upfront as part of your intake process
As you and your client discuss the details of the project, enter them into an estimate, and structure your deposit and payment schedule around that. For example, if it’s a smaller project, perhaps it’s just 50% upfront and 50% upon project completion. For longer projects, set milestones where you will progress along the work and your client will pay you at specified times. No matter how you plan your project, make sure you outline a clear payment schedule.
Digitally request a deposit based on your estimate
Typically, the larger the project is, the bigger the deposit should be. Work with your client to reach an agreement. Then, request a deposit digitally, so your customer can pay and approve your estimate instantly, and you can take another step towards improving cash flow.
2. Take steps to ensure customers pay invoices on time
Waiting on payments can keep you from increasing your business’ cash flow. The good news though is there are three quick fixes that can help you ensure you keep money coming in on time.
Invoice right away
If you’re busy running a business by yourself, the last thing you want to do after a long week is to manage extra paperwork. Sending your invoice immediately upon completing a job can help you get paid quickly.
Offer multiple payment options
Giving your customers multiple payment options is another great way to ensure prompt payment. Currently, credit card and debit card payments are the most popular consumer payment methods, but you can also use ACH bank transfers, and PayPal.
These methods payout to your bank account quickly, meaning you’ll have the cash you need to keep chugging along. If you’re an Invoice2go subscriber, you can also now accept in-person payments using your preferred method via QR code.
Set up automatic payment reminders
“I love chasing payments!” said no one ever. Set up reminders so that your clients know when an invoice is due, and you can easily follow up if you’re ever waiting on a payment.
Offer incentives and/or penalties to encourage customers
While you don’t want to sell yourself short, some business owners offer a small discount to clients if they pay before the invoice is due. Alternatively, you could charge interest or a small fee for customers who miss deadlines. Just ensure these details, including the due date, are noted clearly on your invoice.
3. Look for ways to increase prices and cut costs
If your business is strapped for cash, you can look deeper into your costs and pricing to increase your cash flow. Here are a few tips on how to do it.
Create an official budget to get a clearer picture of your cash flow
Sure, you likely know how much money you currently have in your account, but an official budget can help you gain deeper insights into your accounts payable and accounts receivable.
A first step can be creating a separate business bank account. This way you’ll avoid confusing personal spending with costs and income from your business. Then, you can break down recurring expenses and average income to help project your monthly cash flow. It also can enable you to track assets (equipment you own and use on the job), liabilities (money you might owe), and equity (assets minus liabilities).
Review your pricing
Has it been a while since you reviewed your pricing? It may be time to make some adjustments. Here are a few questions you can ask yourself.
- Have the prices for monthly expenses, equipment, or inventory increased?
- What are my competitors charging? Are my prices too low?
- How would I rate the overall value of my services?
It’s important to keep your prices competitive and to ensure you and anyone you work with are paid fairly for their time.
Look for opportunities to cut costs whenever possible
Review your monthly expenses and ask yourself a few questions to see if you can cut costs. For example, is the expense necessary? And if it is, is it possible to find a less expensive alternative?
Keep in mind that small expense cuts add up throughout the year. For example, cutting $100 out of your monthly budget frees up $1,200 for the year.
Negotiate with suppliers if possible
Do you work with suppliers? Perhaps you can negotiate with them to help free up some cash.
Big costs often come with the materials and equipment you need to get the job done. Before making big purchases, talk to several suppliers, and compare offers. Asking for flexible payment options can work to spread out your costs and improve cash flow.
Although you need supplies and equipment all year, some months are busier than others. Consider negotiating a contract that allows you to pay more during busy months and scale back payments when business is slower.
It’s not just about saving money, it’s also about saving time. Beyond looking for ways to save on costs, also look for ways to save time. Review your current business processes. Are there inefficiencies you can improve on? Are there workflows you can speed up?
Use a cost-benefit analysis when making important decisions
A cost-benefit analysis empowers you to quickly and more clearly weigh the financial strengths and weaknesses of the business choices you plan to make.
It’s simple to use. Add dollar amounts in projected benefits and costs over a specific period, then subtract costs from benefits to determine if the choice will add value. You can also find items not directly related to money, like morale or stress reduction.
4. Build up your emergency fund (even if it’s little by little)
While saving money is often easier said than done, adding an emergency cash reserve can help you stay afloat if you hit a rough patch.
Small businesses are advised to keep at least 10% of annual revenue in a savings account. So if your business brings in $100,000 per year, you’d put away $10,000 for a rainy day.
However, if 10% sounds impossible for you – don’t worry. Even 1% will grow over time and can save you from stress. You can always start small now and then change how much you save later. You’ll be thankful later when a large, unexpected expense arises, and you don’t have to take on debt.
Automate your savings
Remember, starting small is better than not starting at all. Even a savings of 5% of each check you earn, or a small deposit with each transaction, begins to grow in time.
With all the work you need to get done, you don’t want to have the additional task of managing your bank account each month. Instead, you can set up automatic transfers on a cadence that works for you. Some banks even give you the option of having small amounts taken out of every transaction you make and depositing them into your savings.
Save more during peak times
Depending on your industry, peak times can vary significantly over the year. You must plan for ebbs and flows. For example, let’s say you know business is usually stronger during spring and summer. If possible, save more during this time, so that you can relax and enjoy the slower parts of the year. This habit can help you stay on track for year-round financial stability.
The bottom line when it comes to maintaining positive cash flow
Becoming more effective with cash flow management can help you have more money on hand and greater enjoyment in running your business. Also, as you streamline your business processes, you will likely have more bandwidth to expand your workload. The more customers you can take on and keep happy, the more earning potential your business has. Ultimately, you’ll spend more time doing the work you love and have fewer stressful moments.
Congratulations – you’ve just taken some important steps to creating healthy cash flow and building a stronger business. Keep it up!