Growing Your Business While Watching Your Cash Flow

By , The Entrepreneurial Guru for Women

Solo-E Certified Solo Entrepreneur Expert


, Text Only Admin

Solo-E Certified Solo Entrepreneur Expert

Ali Brown - The Entrepreneurial Guru for Women

Keeping your business going in this challenging economic environment takes business savvy, customer skills, and careful attention to detail. Keeping your business growing in this challenging economic environment is another matter entirely. To ensure business growth in tough times, you need to effectively manage your cash flow.

Cash flow is a separate business issue from profitability. Many businesses are profitable year after year when the final statements are done, but they experience considerable cash flow problems throughout the year. These problems are a primary motivation for operating loans and other bridge loan types of solutions to cash problems.

However, due to the uncertain economy, many banks and vendors are tightening up their lending and payment terms. As a result, businesses reporting cash flow issues are on the rise. In fact, a recent study by Small Business Trends showed that from January 2007 to January 2010, the number of businesses experiencing financial challenges related to their cash flow jumped from just under 30% to nearly 50%!

Unfortunately, every hour that you spend juggling cash flow issues is an hour you’re not spending working with customers, selling your product, or building new client connections. Getting caught up in the financial details can keep you from being able to grow your business effectively, since you will be spending a disproportionate amount of your time dealing with non-value added activities. To be able to have the time to grow your business, here are some methods you can use to more efficiently manage your cash flow.

Create a schedule for cash outlays

You may have already done a budget for expenditures for the year, but knowing what you are going to spend is different from managing when you are going to spend. To manage your cash flow in a way that will help you avoid cash crunches and let you focus on growing your business, you need to make a detailed schedule of expected cash outflows.

This schedule can help you avoid billing surprises and also help you more effectively manage your payments. Certain costs, such as salaries and tax payments, have a fixed schedule that must be followed. However, other cost outlays have more variability built in that you can use to your advantage. Using your projected revenue data, you can leverage this variability to help mitigate predicted cash flow issues.

For example, many businesses pay invoices within a few days of receiving the bill, even though they have 15 or 30 days to make a complete payment. By timing your payments toward the end of the billing window, you can allow more time for incoming revenue to build up your cash balance. This may help you avoid emergency borrowing or simply accessing credit lines that could be left untouched. Your payments will still be on time, and you may be able to avoid unnecessary interest charges and fees, improving your balance sheet and leaving you with more money to grow your business in other ways.

Evaluate your supplier relationships

In addition to a cash outlay schedule, you should also evaluate your supplier relationships. You will want to know all of your payment terms as well as understand which suppliers are willing to work with you in the event of a cash crunch. Many suppliers have been developing a more flexible attitude around payments and payment terms in light of the current economic challenges.

For example, you may want to look into potential discounts for pre-payment on regular supply contracts. This can be an especially helpful cash management technique if you have seasonally fluctuating income. By making advance payments when you have cash on hand, you can create business savings that can be redirected to development and growth projects.

It is also important to note which suppliers are inflexible on terms, and what the consequences are if you fall behind for any reason. This can help you make more strategic choices about partner relationships, and it can serve as an early warning system if you have a supplier partner who is strug­gling with their own cash flow management issues. You’ll want to keep abreast of changes in billing terms, especially if those changes result in pressure on your own finances.

Tighten up your payment terms

One of the most basic elements of cash flow management is making sure you are being paid before you start making payments. Though it is an unpleasant aspect of business, you will certainly experience delinquent clients or deliberate late payers at some point. One way to keep this kind of thing from becoming a problem is to tighten up your own payment terms.

It can be a daunting prospect to put down a hard line on payments for your business. However, clients should in no way be surprised to see your firm taking this step. According to a 2009 report by Growing Business, 86% of entrepreneurs have enforced stricter payment terms to get better control over their finances. By tightening up terms at your business and being more committed to chasing late payments, you ensure smooth capital flow for growing your own bottom line.

Fire your bottom 10% of clients annually

It can seem counter-productive to send away clients in a tough economic environment, but annually firing the bottom 10% of your clients can be a way to dramatically improve your cash flow and reshape your business in a more positive way. Chances are that you already know which clients cost more to service than the contract is worth, or which clients consistently give you trouble about payments.

By removing the clients who consume a disproportionate amount of your resources or fail to pay their bills on time, you can devote more time to building new business with your existing top clients. You also have the chance to replace your fired clients with stronger and more profitable client relationships. Though severing client ties is a dramatic move, it’s a strategic gesture designed to free you of problem clients and steer you toward more profitable partnerships. Taken together with the other steps listed above, it can ensure your business thrives in the years ahead.

Ali Brown is fast becoming regarded as the voice for women in business and success. After launching her first business from her tiny New York City studio apartment in 1999, she has grown it into what is today Ali International, a multimillion-dollar enterprise with 50,000 members that ranked in 2009’s Inc. 500 list of fastest growing private companies in the nation. recently ranked Ali as #1 Woman for Entrepreneurs to Follow on Twitter. Ali is dedicated to helping women start and grow their own businesses via her coaching and publishing company the Millionaire Protégé Club; her female-centric Ali Magazine; her online Ali Boutique; and Shine, her annual fall conference where Ali delivers the best in business-building strategies for entrepreneurs of all levels.

© Copyright 2010 Ali Brown

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