Small Business Owners & Side Hustlers: Here’s How to Manage Your Cashflow
by Amy Collett
While many small business owners and side hustlers focus on profits and revenue, cash flow is the most critical sign of business health and sustainability. Cash flow is the movement of money into and out of your business. Meanwhile, net cash flow is the difference between the amount of money entering your business and leaving it. It represents your ability to pay the bills and keep your business operating smoothly without taking on debt or defaulting on payments.
Since many businesses fail due to cash flow issues, maintaining a healthy cash flow should be your top priority. Thankfully, there are several steps you can take to generate and sustain positive net cash flow that keeps more money entering your business than leaving it.
Tips to generate and sustain positive net cash flow
Monitor Your Cash Flow
Keeping a close watch on your cash flow is essential for making timely adjustments to your business spending. This way, you can ensure that the amount of money going into your business exceeds the amount of money coming out of it, even if your sales dip or your suppliers hit you with a price increase.
But how do you keep a close eye on your cash flow? First, don’t try to monitor your cash flow with bulky spreadsheets. Manual financial tracking is time-consuming, prone to error, and difficult to scale. Financial reporting tools like QuickBooks and Nav.it make it easy to monitor your cash flow trends. You can review benchmarks from different periods and access real-time insights into the financial health of your business. Use tools like these to stay aware of your cash flow at all times so you can make changes as needed.
Use Good Budgeting Practices
Good budgeting practices are also essential for maintaining a healthy cash flow. By piecing together a basic budget to calculate and compare your income and expenses, you can better understand how much money you have and where that money is going. A solid budget will also help you forecast future cash flow so you can prepare to cover your expenses as they come up. When building your budget, be sure to overestimate your costs, pay yourself enough, and make a plan to revisit it regularly.
When reviewing your budget, look for opportunities to trim expenses and cut unnecessary spending to boost future cash flow. Again, this is where you can use tools to keep things simple. For example, Nav.it’s money tracking features can help you stay on top of your business budget by plugging in your expenses and income and reviewing trends over time.
Offer Incentives for Early Payment
Getting customers to pay on time can be a real hassle. But when clients pay late, you might not have the cash on hand to meet your own costs. You need money flowing into your business immediately after selling or rendering a service. How can you get clients to pay you faster? Try offering incentives for early payment! Give your client the option to pay less than the whole invoice if they pay before a specific date.
Follow Accounts Receivable Best Practices
In addition to early payment discounts, you can implement a few other strategies to encourage faster client payments. First, ensure your clients read and understand every section of your contract. Your client should understand payment terms before signing. If possible, consider confirming payment terms in person or over the phone before starting the project. This early clarification fosters a healthier relationship and can help you avoid unnecessary, difficult conversations when it comes time to collect.
Send your invoice immediately after providing your services or goods to the client. Accounting tools that include automated invoices can help you stay on top of this. When drafting invoices, try to keep them as simple as possible to avoid overwhelming your clients with confusing information. Make it easy for clients to see the amount they owe and submit their payments, ideally with an online payment portal.
Encourage Repeat Business
Increasing your sales volume is a foolproof way to generate cash flow. However, more sales tend to create more expenses, making it challenging to grow your bottom line and increase your net cash flow. One great way to keep your costs low as you grow is to focus on encouraging repeat customers. According to Constant Contact, it’s easier to make a sale to repeat customers. They also spend more money and cost less to acquire compared to new customers. Keep those customers returning with loyalty programs, VIP accounts, and other frequent-shopper rewards.
Negotiate With Your Suppliers
The Pitch Queen explains that lengthening your payment terms with suppliers is another effective way to improve your net cash flow. You’ll have more time to earn the cash you need to make your bill payments. Get in touch with your vendors and see what they can do!
Better yet, start building a relationship with your vendors before you find yourself in a cash crunch and need to negotiate your payment terms. Communicating with your vendors frequently is a great way to build a strong relationship with them and increase your chances of reaching a mutually beneficial agreement. When you’re ready to propose an adjustment to their payment terms, let them know what they’ll get from the new arrangement.
Streamline Inventory Management
If much of your cash is tied up in inventory, it’s time to make changes. Good inventory management will help avoid overstocking and holding onto obsolete inventory that sits there and costs you money. Inventory management will also help you avoid under stocking and overselling products, which can hurt your net cash flow. Look for reliable inventory management software that includes features like forecasting, minimum and maximum product alerts, and an effortless SKU system.
Lease Instead of Buying
Leasing equipment instead of buying it outright is another way to keep more cash available for daily business spending. Leasing reduces cash strain as you grow your business or get through a sales slump. Buying equipment may be a better choice if your cash flow is already solid and reliable. You’ll also save some money in the long run. That said, leasing equipment is a great way to access the latest technology instead of holding onto old equipment that may one day become obsolete.
Cash flow is the lifeblood of your business, and running out of money is one of the worst things that can happen. From monitoring your financial health to negotiating payment terms with suppliers, do everything you can to maintain a healthy cash flow and keep your business or side hustle growing!
Monitoring your cash flow is key. Thankfully, Nav.it can help you stay on top of your business’s financial goals. Learn more here!
Amy Collet is the creator of Bizwell.org, a website that helps professionals and entrepreneurs build and strengthen their personal brand. When she’s not busy with helping her clients, she enjoys coaching her daughter’s soccer team and is training to become a yoga instructor.