Business cash flow — the money coming into and going out of our businesses — makes me think of the blood that courses through our veins.
And I just found out I’m not the only person who imagined this analogy. Today I learned that Richard Branson, the larger-than-life British inventor, said, “Never take your eyes off the cash flow, because it’s the lifeblood of business.”
Yep, great minds must think alike.
Understanding the ins and outs of your business’ cash flow — and knowing when to stem the flow (just like when we stem the flow of blood when we get injured) — will keep your business healthy. Because if your cash flow is generally steady and predictable, you can better manage things when times are tough for your business.
Better-Managed Cash Flow Leads to Profitability
One of the reasons I became a Profit First coach last year is to help small business owners better manage their company’s cash flow. I’m their business coach and we meet at least monthly for (typically) six months.
Profit First, in case you’re not familiar with it, is both a best-selling book and a cash management methodology. Profit First helps business owners break out of the downward spiral of sleepless nights worrying about out-of-control cash flow, mounting debt and a feeling of hopelessness.
The big idea for Profit First: Stop treating profit like an afterthought and move it to the forefront of everything your business does financially — profit first.
From a more practical standpoint, following Profit First’s principles means you’ll make changes to your accounting and banking practices. You’ll set aside money for profit each month — even if it’s a small amount initially — then spend what’s left on business expenses. You’ll also use not one but several bank accounts, which is something your bank should help you with. (If not, it’s time to find a financial partner who will!)
The profit-first mindset change is a huge step for most business owners I work with. That’s why they like having me by their side. I guide them through the process, showing them how to implement the principles into their day-to-day bookkeeping and financial practices. As a partner in their journey, I help keep them accountable to the transformative changes they want to make in their business.
How to Reduce Cash Flow
If you’re battling the cash flow battle right now and losing sleep over whether you’ll ever be able to get your business’ financial act together, here are four ideas to reduce the outflow of cash:
- Cancel no-/low-benefit expenses (e.g., app subscriptions, entertainment and other non-essentials).
- Cancel no-/low-benefit personal expenses your business funds — dining out, attending conferences, etc.
- Renegotiate terms with required recurring and one-time expenses, such as your lease or capital equipment.
- Seek new terms or extensions from your vendors and suppliers.
How to Increase Cash Flow
Bringing more cash into your business deserves your focus, too, and here are four more approaches to try:
- Proactively address borrower/lender matrix to ensure continued cash flow.
- Introduce new payment options to encourage more product and service sales (e.g., 0% financing, credit card, ACH, cash discount, etc.).
- Use a “What can you afford right now?” strategy with your at-risk-for-defaulting customers to keep cash flow coming into your business.
- Invoice customers earlier or more frequently and, when it makes sense, request a deposit upfront.
How Healthy is the Lifeblood of Your Company?
Running a company is challenging, all-consuming work, especially during tough times. If you’d like to learn more about healthy cash flow practices from a Certified Profit First Professional (that’s the official name of my role!), let’s talk. Just grab a spot on my calendar, and I will be in touch.