Maintaining healthy cash flow is essential for small-business success, since it helps you verify the correct amount of money flowing into and out of your business. The cash-flow definition is the measure of the money coming in and going out of your business over a specific period. It tracks the cash receipts and cash payments for your company. It's important you calculate this correctly and maintain a positive balance on your cash-flow statement.
To ensure that, it's usually to your advantage to generate cash flow fast. By employing a balanced approach that strategically addresses revenue growth, expenses and productivity, you can effectively boost your cash reserves.
Consider these seven strategies to produce positive cash flow quickly and consistently.
1. Get a deposit and establish milestones for long-term projects.
Whether you're a catering business, graphic designer, or freelance content strategist, long-term projects can offer significant revenue potential for small businesses. However, not getting paid until the end of an extended project can put a serious strain on business operations.
Requiring an upfront deposit and setting payment benchmarks along the course of the project can protect your small business in a few important ways. The deposit can show that the client is committed to doing the project with your business, not simply price-shopping with businesses like yours.
It also can provide initial funds to cover project launch costs like buying supplies or hiring subcontractors. As you hit milestones, further client payments are released, which helps ensure consistent cash is coming in over the project’s duration.
This can help ease cash-flow concerns that might arise if all revenue was tied to project completion and allows you to keep other projects going.
2. Consider a discount for immediate payment.
Most small businesses may rely on invoicing clients for full payment after services are rendered or products delivered. While this is the standard payment term model, it usually doesn’t immediately boost cash flow.
Here are some discounting tactics you can use to encourage faster payment:
- Try to offer a nominal discount of 5-10% for clients who can pay an invoice within 7 days. This can reward prompt payers without significantly cutting into your margins.
- Try to offer larger 10-15% discounts to reward immediate payment on larger invoices over $5,000. For projects priced higher, a discount up to 15-20% may be reasonable.
- Try to make sure any discount you offer has a time limit – like within 30 days. Such a deadline can create urgency while allowing responsible clients extra time to process payment.
- Consider a smaller ongoing discount of 2-5% for regular clients who consistently pay within your contract terms every month. This can build loyalty over time.
- Consider limiting onetime discounts to 30% max. Any higher can risk undervaluing work and setting an unsustainable precedent for clients.
For small businesses, a limited time and percentage discount may significantly increase near-term cash flow without long-term financial detriment. It can be a tactful way to earn earlier revenue and keep cash moving. To be successful, discounting practices should try to be well-planned and remain consistent, as opposed to ad hoc deals offered when your cash flow is low.
3. Raise your prices.
Bringing in higher revenues is one of the most effective means of improving your small business's financial situation, and raising prices can help achieve that. Concerned clients might look to competitors if you increase prices? You might help deter such attrition by implementing your new, higher prices only with new customers and keep your current rates for existing ones. This can allow you to maintain current revenue streams while generating higher cash flow from new projects.
4. Offer premium or bundled services.
Upselling premium or bundled services can enhance your value proposition for your clients. This strategy not only can increase revenue but also foster client loyalty, which usually contributes to a more predictable cash flow.
Bundling services or products also might reduce your overhead costs, further improving your small business’s cash flow. Here are some examples of both tactics for product- or service-based companies.
For a product-based business offering premium services:
- A hardware store offers premium assembly and installation of items like decks or sheds.
- A catering business offers custom or themed cuisine with premium ingredients or specialty desserts with sophisticated designs and decoration.
For a service-based business offering premium services:
- A landscaping company offers a custom or VIP package for high-maintenance yards that includes more frequent visits.
- A communications consultancy offers tailored strategic planning packages that include expert services that help clients get optimized for longer-term success.
- For a product-based business offering bundled services:
- A hardware store bundles tools, materials, and assembly into a single package for common projects like cabinet installation.
- A bookstore bundles popular genres into monthly book subscription boxes.
- For a service-based business offering bundled services:
- A photography studio bundles engagement sessions and wedding photography into promotional package deals.
- A freelance writing business bundles content creation with a content strategy that includes a content marketing plan.
5. Create seasonal excitement.
Seasonal promotions or product launches can create short-term revenue increases. These revenue surges can be invaluable for building cash flow that helps your business meet unexpected expenses or fund special projects.
Use data analytics to help identify the best times for such promotions to optimize their impact. Here are several seasonal promotion ideas that could excite customers and have them looking forward to them each year.
- Memorial Day, Juneteenth or Fourth of July fireworks and BBQ packages. Consider offering packages with fireworks, BBQ essentials and holiday-themed decor to celebrate these holidays at home.
- Labor Day beach picnic packages. Consider assembling picnic baskets with supplies for a beach or park picnic for this holiday. This can be especially helpful when Labor Day falls midweek.
- Thanksgiving sides and pies. Consider baking and selling Thanksgiving side dishes and pies for customers to serve during their Thanksgiving meals. Try to specialize in the food traditions followed by different ethnic groups to help generate more interest in your offerings and revenue.
- Winter holiday pop-up shops or markets. Consider selling holiday-themed decor, gifts, seasonal food, and drinks from your temporary setup during the holidays. This can also build excitement and allows you to offer annual products and services.
6. Negotiate terms with vendors.
Revenue is only one part of your businesses' financial equation. Expenses also play a key role in cash-flow management. Yet, many small-business owners don't negotiate terms and pricing with their vendors, even when those opportunities exist.
If you ask, you might find your suppliers willing to offer 30-day payment periods with no added fees. Leveraging your spending volume could lead to favorable quantity discounts, too. You can do this by collaborating with other firms on bulk orders that may lower costs for you all.
7. Implement systems that improve productivity.
Implementing systems that improve your existing team’s productivity may uncover cash-flow benefits. Here are several ways you might look for efficiencies:
- Consider improving the rate of routine task completion with templates and checklists. Having your team help you systematize repetitive administrative tasks can save time for more important revenue-driving opportunities.
- Try to leverage technology like CRM software to help streamline communications and paperwork. Automating manual processes can free team members to focus on higher-value work.
- Consider inventory tracking apps, if applicable, to help collect better data about your inventory levels over time and eliminate errors that can strain cash flows.
- Consider reviewing workflows for inefficient processes that introduce project delays. Removing unnecessary steps can keep project completion timelines on track.
By streamlining workflows, you can help make your staff available for other work that translates directly to a stronger bottom line and healthier cash flow. A great place to start can be soliciting your employees' input – which can help leverage their unique knowledge and encourage them to feel ownership over process improvements.
Keep Your Cash Flow Positive
Strategically addressing key areas of cash flow like increasing revenues, negotiating lower expenses, and improving productivity through systems can help you build up the cash reserves you need to run your business optimally.
Looking for more on cash flow? This article gives you an overview of cash-flow fundamentals and how they differ from profits to help you more effectively manage your small-business finances.
A version of this article was originally published on October 08, 2018.
Photo: Getty Images
