Businesses can’t rely on just profits to survive. An organization’s cash flow can determine if it will thrive or fail, and according to a study by U.S. Bank, 82% of business failures are due to poor cash management. Fortunately, you can prevent your business from falling short by maintaining awareness of your current financial state, diversifying your revenue streams, and strategically managing client and vendor payments. Here are three steps to get you started on the road to being cash flow positive.
Step 1: Perform a thorough evaluation of your current financial state
Cash flow is often overlooked, especially when a business is experiencing high profits and rapid growth. However, whether it’s bills not being paid on time, waiting on delayed client payments, or surprise costs due to expansion, not having the cash on-hand needed to cover expenses can lead to serious financial problems. And worse yet, these could have been completely avoided through a proper evaluation of your current finances. According to Paul LaRock, a principal at consultancy Treasury Strategies in Chicago, “too many companies get blindsided by unfavorable movements in cash flow that are predictable if they really sat down and thought through it.”
To avoid these unfortunate (and embarrassing) instances, sit down with your finance team and do a thorough evaluation of your finances, and your AR and AP processes. Make sure you not only look at where you stand currently, but at 30-, 60-, and 90-day projections. By looking out in the future, you can see pending bottlenecks or issues that can be addressed now, and save you from heartache and potentially tough and unfavorable decisions in the future.
Step 2: Diversify your revenue stream
Simply put, having more than one revenue stream can save your business when times get tough. It’s like that old saying “never put all your eggs in one basket.” For small to midsize businesses, the thought of diversifying products or service offerings can seem overwhelming or unmanageable, especially when time is tight and staff is already stretched.
However, it is often this diversification that strengthens customer loyalty, giving them more reason to come back. Not to mention, if you were to miss out on a large deal or lose your biggest client, this additional income will keep you afloat while you work to replace what was lost.
This doesn’t mean you should jump into the next possible thing that comes your way. Lawrence Jones, CEO of managed hosting provider UKFast, gives this sound advice: “There are three circles to consider when looking into a new business venture: Is it commercially viable? Am I good at it? Am I passionate about it?”
Step 3: Proactively manage client and vendor payments
This step circles back to Step 1. After you have thoroughly evaluated your current finances, look for opportunities of improvement in your AR and AP processes. Whether it’s finding ways to shorten time for receiving payments from clients, or negotiating discounts with your most used vendors, proactively managing invoices and spend can go a long way to not only saving money, but ensuring the cash is there when it’s needed.
Upgrading to an automated AP system plays a big part in managing cash flow. Concur Invoice offers an automated, cloud-based solution that is mobile enabled, making invoice management accessible from anywhere. Important approvals or decisions don’t have to wait until managers are back in the office, maintaining the flow of business. In addition, the automated system makes data more accessible, giving the financial visibility needed to make those necessary business decisions and maintain a positive cash flow.
Take charge of your cash flow today
Understanding and improving your cash flow is one thing that should never be put on the back-burner or the bottom of a to-do list. Pro-active management can save your business from future financial troubles.
These three steps are just a start. There are many more opportunities and possibilities for maintaining positive cash flow. Learn more by attending our June 21st webinar, hosted by Entrepreneur: 5 Strategic Ways to Improve Cash Flow. Space is limited, so register today and get the tools for cash flow success.