Protect Your Cash Flow During Bad Times and Good

Money_01 There are a lot of concerns for businesses when it comes to cash flow and the recession. There are less lines of credit being extended and owners need to find ways to ensure the cash keeps flowing.

Here are some tips to help your business stay on top of the credit crunch:

Cut Back on Excess – Pay attention to where your finances stand. You need to have an active hand in your business' money management. Spend only what you need to be productive. You may even think about renegotiating pricing and terms with your vendors.

Pay Attention to Money Due – If you closely monitor who owes you money and when, you can take proactive measures to ensure the bills are getting paid and reduce the time, energy, and money you waste on collecting overdue or missed payments.

Don't Put All Eggs Into One Basket – If you are highly dependent on a singular, or small group of clients for the majority of your receivables, you can be vulnerable to money problems. The reality is those who owe you those receivables may also be at risk for going out of business before paying you what they owe. You should make sure that no one source has more than 25% of your generated income at any time.

Invest to Grow Your Business  Since credit is sparse these days, you may consider borrowing from a bank what you need in collateral and use it to make smart investments that you can use to grow your business. Investing your cash in what will bring in a consistent return may be a better option than just having limited resources of cash.

Accept Credit Cards If your business does not yet accept credit cards, you should seriously consider changing the rules. Prospects and clients may be more apt to pay up if they have the option of paying by credit card rather than cash or checks, as they do not always have the money on hand when invoices come due.

Go Beyond the Banks – Since credit at banks is tighter than ever, you may have to get creative about how you can raise capital for your business. One popular way many businesses have found to go beyond traditional bank loans is using what is known as a “merchant advance”. This is a process where a third party will analyze your credit card revenues during a certain time period. Based on those revenues, your company can get an advance that can be used for capital right away. You can pay back the advance plus interest based on future credit card receipts.

Cash flow is essential if you want to grow your business. In fact, good cash flow is critical if you want to stay in business. You need to remain active in the money management of your business, especially if you are experiencing a period of growth. Spending too much too soon without proper thought for the business down the line can be detrimental to your company's livelihood. Also, setting a precedence early for collecting on invoices due is one of the keys to cash flow success.

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Erick Simpson
MSP University
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Posted in: General Business

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