Healthy cashflow is vital to reducing stress for busy business owners and to building a successful company. As you grow, ensuring a steady stream of cash that supports your marketing, customer service, and inventory needs will be one of the business factors you focus on the most.
The concept of cash flow is fairly simple: your business uses cash to create goods and services for your customers, and you collect the cash back (with a mark-up!) from those customers. The cycle of cash flowing in and out is tracked using a Cash Flow Statement.
Managing your cash flow is the key to sustainable growth over the long term, so this week we're sharing tips that will have you handling your cash flow like a pro in no time!
Cash Flow Tip #1: Getting Paid Quickly
When you've completed a job, you want to get paid quickly. Creating and sending invoices, especially in a complex business, is almost always time consuming and challenging. Systemising this process, creating a tracking system, and keeping up with the task will make a big difference in your cash flow. Setting clear expectations with your customers for how often and how much invoices will be is another key piece to getting paid quickly.
Fortunately, software like Xero helps by automating the invoicing process, creating a paper trail so you can track invoices, and allowing customers to pay online. The easier you make it for clients to pay, the better your cashflow will be!
Cash Flow Tip #2: Maximising Inflow and Minimising Outflow
Evaluate your business on a regular basis to make sure you're optimising your pricing while controlling costs. This may seem elementary, but you'll likely be surprised at the opportunities you find to raise prices and cut expenses.
Taking action to protect your cash flow like requesting 50% up front on large jobs or establishing milestones on long-term projects will help regulate your income. Cash outflow can be minimised creatively by outsourcing low-level positions, utilising the cloud for data storage rather than hardware, or repairing rather than replacing equipment.
Cash Flow Tip #3: Using Debt to Grow
No one likes the idea of debt, but borrowing money is a normal part of doing business. Unlike in personal savings, businesses often need to borrow in order to take advantage of opportunity and grow.
Borrowing is a risk, but if you do your due diligence and research your financial situation properly, you will be confident that your return on investment will cover the debt and more. And if your plan goes wrong, you'll be prepared to compensate. Your accounting team can prepare the right reports to provide you with the information you need to make an informed decision.
If you have questions on how you can better use your cash flow to grow your business, the Digit business team is here to help, contact us!