Cash Flow: A Two-Sided Coin

There are two sides to cash flow. There is money coming in and there is money going out.

The goal of any business is to make sure there is more money coming in than going out on a regular basis. That’s what creates a successful business.

To make sure that happens, we can either focus on making more money or spending less.

Actually, let me take that back. The most effective strategy is to focus on both… increasing income and cutting expenses.

Let’s take a look at both and I will share some tips with you to get you started.

Money Flowing Out!

Let’s start by taking a look at money flowing out of your business, commonly referred to as expenses.

It’s a good idea to review your Profit and Loss Statement along with your Cash Flow Statement each month. Do you spot any expenses that are unexpected, that are not giving you the return you expected, or are no longer necessary? Cut them out. Any dollar you save is another dollar of profit.

Are there any expenses that can be reduced by seeking alternative suppliers? It is a worthwhile exercise to review this on a regular basis.

One of my friends has owned a very successful restaurant for a number of years.  It is a great place with a wonderful atmosphere, fantastic menu and great prices. I asked him to explain to me his secret to success in that industry.

Obviously, you have to have great food, that goes without saying.

He was very proud to tell me about all the hard work he put into building relationships with his suppliers to reach and sustain lower product costs even if it was only 1% below average.

That came from screaming and yelling, to offering perks, gifts and of course, threats of changing suppliers (but only as a last resort).

In the end he always paid less and got more out of his suppliers than did his competition.

Of course, there’s only so much you can do to cut expenses before you start to hurt future profits. For example, you might be able to save a lot of money by letting your assistant go. However, that will also keep you from making progress on things like drumming up new business when you’re busy doing the work previously outsourced to that person.

Money Flowing In!

Let’s look at the money coming into your business and focus on new business and more sales.

One of the main assets in your business is your existing customer base.

It is generally a lot easier to make sales to your existing customers than it is to get new customers. Keep them happy and stay in touch regularly. Remind them of what your business does and how you can help them.

Each time you send out an email or make some calls, chances are you’ll pick up more business.

It’s a lot easier to sell to an existing client than to go out and find a new one. Start there and see how much more business you can drum up.

What about when you are on the job? Your customer may have engaged you for a particular task but are there other tasks that need doing?

Develop a checklist you can use on the job to sell more services to the people you are already serving.

If your business has a repetitive element, make sure you are taking advantage of that. For example, a window cleaner should be booking the next appointment before you leave the job.

If you install solar panels, sign your customer up for a regular maintenance program to ensure the panels are maintained and you have an ongoing income and cash flow.

Eventually you want to shift focus a bit and drum up new customers and clients as well.

As your positive cash flow increases, set aside a portion of that money to reinvest into advertising, travel to trade shows or conferences and the like.

Keep track of what’s working and what gets you the most bang for your buck.

If you’re finding more clients by running ads on Facebook, do more of that. If you’re getting more clients through ads in the local paper, find other small papers in your area and try advertising with them.

Tracking cash flow will help you see how your business is doing month after month and what is working to make it more profitable.

Manage Your Cash Flow!

I can give you all the tips in the world to decrease expenses or increase sales, that will help with your cash flow. However, in my opinion the biggest issue in successfully handling cash flow in your business is “Awareness.”

You would be surprised at the number of businesses that just stick their heads into the sand and avoid all talk of cash flow… until it is too late that is.

It is imperative to be aware of and on top of all financial data you can get your hands on in respect to money coming into and flowing out of your business. It is only then that you can put in place a strategy to deal with the cash flow issues in your business.

It is this awareness that will save your business.

Ignorance is NOT bliss in this case and cannot be tolerated. Know your business finances.

Larger companies have an accountant on staff to deal with understanding the financial data.

You do not have that luxury when you are a self-employed small business owner. You have to do it yourself. Don’t ignore it!

After all, It’s Your Money!

This article is one of a series on the topic of cash flow. Here are links to the other articles in the series:

Cash Flow: Why Is It So Important?
Cash Flow: A Two-Sided Coin
6 Tips to Understand Cash Flow