How To Increase Cash Flow During An Economic Crisis
By Octavia Conner
There are a variety of metrics that you can use to determine the health of a business; however, none are as indicative of success or failure as the cash position of the company. If there is more money flowing out of the bank account then in during a week, month even day, this could be a clear indication of current or future financial challenges.
Cash is your business’s superpower! Therefore, positive cash flow is essential for overall business success. A company cannot grow effectively and efficiently within maintaining positive cash flow. Positive cash flow indicates that spending is under control, and sales are flourishing.
While it is essential to maintain positive cash flow at all times, during an economic crisis, it becomes imperative so that you outlast that time. But how do you keep the cash flowing in a slowly declining economy?
There are two primary ways to accomplish this: 1) increase revenue and 2) decrease working capital expenses and all unnecessary cash outflow. Now at face value, the answer seems simple. Still, the challenging part is implementing change and strategies that yield a higher bank balance and a business that continues to operate effectively.
Let’s examine three strategies that will result in an immediate cash increase for your business:
1. Analyze Spending
Are you paying for services, goods, and products that you simply don’t need? Over time, small monthly payments add up to large total amounts. To locate unnecessary cash outflow, list how money has flown out of your company over the last three months. This list should include expenses, loans, and any additional reasons cash that has left your business bank account. Next, take a hard look at the specific amounts and reasons behind them. Determine if the item is currently needed to operate your business. Even if it is momentarily, the goal is to reduce or eliminate all unnecessary causes of cash decreasing.
As you are examining each line item, I recommend you ask yourself a simple question: Is this cash outflow item needed to operate my business? The answers are “yes,” “no,” or “could be lower.” If you answered “yes,” you must then determine the return on that investment. If you discover that the return is $0 or a low dollar amount, then the answer is actually no. If you answered “no,” your next step is to eliminate that expense immediately. If you answered, “could be lower,” your next step is to determine how you can reduce that cash outflow quickly.
Once you complete this exercise, determine how much cash flow you will save due to your immediate actions and send me a message with that amount. Reducing your unnecessary expenses will result in a direct cash flow infusion for your business.
2. Open Your Mouth and Ask
During an economic crisis, one of the ways to increase cash flow immediately is to contact your current recurring clients and offer an incentive if they can pay their long-term agreed amount in full. As the saying goes, “a close mouth doesn’t get feed.” Therefore, there is no harm in asking this question while offering additional value. You want to make sure that the value-added incentive you offer is something hard to turn down, but that it doesn’t require you to spend extra money. For example, if you are a website designer, you can offer to create an additional landing page, essential SEO work, or a 90-minute marketing strategy session.
3. Streamline & Standardize Billing Procedures
In the haste to increase cash flow, it is easy to neglect simple money management practices that can yield high returns as such streamlining billing procedures. While there are several ways to streamline and standardize billing, the first step I recommend is requiring deposits or upfront payments before working with a new client.
Also, you want to make it easy for your clients to pay you by not only accepting credit or debit cards and ACH payments but also including a payment link in your email, on your website, and when sending invoices. Contact those clients with past due invoices and request an immediate payment that you can process over the phone.
Last, all invoices that you have deemed uncollectable depending on the amount you can sell them to a collection agency, and in most cases, you receive a reduce up-front amount. The collection agency will assume the responsibility of collecting the money while you receive extra cash in your bank account.
There is no standardized approach to increase cash flow. There are additional strategies that I will provide in a later article and episode. One key take-away is that you must take the time to evaluate the fluctuation of your cash by day, month, and week. This hard-look evaluation will identify the first step you must consider that will result in an immediate increase in your cash flow. If you desire an experienced accountant to conduct a Cash Flow Audit of your business, schedule a session with me today.
About Octavia Conner
As the CEO of Say Yes To Profits, a virtual accounting firm, Octavia Conner is an award-winning financial strategist that specializes in helping businesses grow between 30% and 350% within 12-months while saving over 55% in taxes. For more information, visit https://sayyestoprofits.com