If you are a business owner, you might have heard that you should “lead your business through your cash flow.” In fact, consistent cash flow is the key to success. The baseline is that you should always have more cash coming in than going out.
This way, your company is on the green. However, tough times try everyone every now and then. If you have planned out your cash flow and its predictions well, you will have no problem floating over some dips on the road.
In this article, we will look at the best tips on how to control the cash flow of your business. Reza Shojaei, the owner of Value Marketing, gives an insight on how a multimillion dollar, multinational company handles its cash flow to keep the business steady.
What is cash flow?
Before we dive into the tips and the practices of keeping your cash flow in the positive, let us look at what cash flow actually is. When speaking about cash flow, it means the money that comes to your company’s account and the money that leaves the account. In short, this means all the transactions that are related to your business.
It means the money you get from selling goods and services, as well as the expenses you pay, for instance, rent and salaries. The key to success of your business lies in controlling your cash flow and keeping it in the positive.
- You should evidently have more money coming in than going out – at least usually. Every business encounters a bump or two every now and then, when there is more money going out than coming in. However, if you are prepared for it, it will not be a problem, Shojaei says.
Shojaei owns a multimillion dollar company, Value Marketing, that has two major brands: CaisnoTop.com and CasinoTopp.net. Both brands are related to online casino markets. Currently, the business operates on 12 different markets.
How to manage your cash flow during hard times
Nothing beats preparation. Ultimately, before you even start a business, your business plan should include predictions and plans for your finances and the cash flow. There are a few things that should already be in place that can help you on your journey, should you ever come across harder times.
Savings can help you to fix leaks
Just like private people, businesses should also have some savings set aside. Ideally, you would have a few months worth of expenses set aside in your savings account. Though we always hope everything goes smoothly, in an ideal situation you will have some cushion for the rainy days. You should be able to pay the rent for your space, the salaries for your employees, and any other purchases.
Sometimes, companies even take business loans in the beginning of their journey just so they can set it aside to their savings account.
- Having cushion in your bank account for hard times can be a saving grace. We all hope nothing bad happens, but sometimes things happen that are out of our control, Shojaei says.
See if you can pay after sales
In some sales models, you can order your inventory in advance, and pay next month. In such a situation, you might be able to sell some of the inventory before it is time to pay the invoice. In a tight cash situation, such a solution might be a viable one. Of course, it is always the best to pay everything in advance, but hard times call for different actions.
Selling assets is not always the smart choice
Some companies, such as gyms or factories, might have equipment that they do not necessarily use, but that might be useful in the future. A common solution to a cash flow problem would be to sell off unused equipment. However, many professionals do not recommend doing that as the first solution.
Should the bad times continue, selling equipment or other assets might come to question. But it should not be the first solution.
Use cash flow planning tools
Preparation is key to managing your cash flow. In fact, using cash flow tools that help you to predict sales and customers’ behavior a few months ahead of time can be useful. There are many free or low cost applications and programs that let you input and integrate sales and expenses. Based on previous data, they can help you to predict what might happen in the near future.
Preparation helps you to adjust accordingly in advance. This way, you will not need to worry about possible slower months.
Ask for deposits
In certain business practices, it is possible and recommended, even, to ask for deposits for the work to be done. For instance, if your company manufactures something custom-made, it can be useful to ask for 10% down before the planning stage, for instance. This can help you cover some costs that planning and getting started might cause.