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How to Maintain a Positive Cash Flow for Your Small Business – Strategies for Success
By Amy Collett at Bizwell.org
As a small business owner, you need to recognize that cash flow is your lifeline, and if it’s not managed correctly, your startup can fail. That’s why you must prioritize cash flow management if you have the proper finances to fund your expenses on time.
How to Maintain a Strong Cash Flow
Just like leading a healthy lifestyle helps prevent and identify potential health issues early on, focusing on cash flow can help you keep your venture free of financial problems. A positive cash flow means that your business will have the ability to expand, invest in its future, and be ready for potential issues. A startup that keeps its cash flow negative for a prolonged period will find itself deep in debt and, usually, fail altogether. Implement the simple strategies below in your growth plan to improve and maintain a healthy cash flow.
Understand Basic Accounting
By understanding the fundamental concepts of basic business accounting, you’ll be able to read and comprehend financial statements. What’s more, you’ll be capable of tracking your business’s financial status, ensuring you stay cash flow positive.
Cut Unnecessary Costs and Offer Multiple Payment Options
Cutting costs in small but consistent ways will ultimately lead to significant cash flow changes and maintain it healthily. As expenditures reduce, your cash flow is prone to remain on the positive side even if you’re not bringing in more money than previously. And by offering multiple payment methods, your clients will be able to pay at their own convenience — this will increase the probability of customers paying you on time because of the various options available.
Choose the Right Business Structure
The Internal Revenue Code is full of breaks for numerous industries and taxpayers in particular situations. There are various tax opportunities you can have to reduce your tax bill and improve your cash flow, but it mostly depends on the business structure you choose. Consider changing your business model to sole proprietorship, which is cheap and easy to form if you chose another entity. The structure will boost your cash flow by offering numerous benefits, including control over your startup, deductions, and low tax rates, which are already down for this particular business entity. The deductions can lower your final tax amount since this business structure doesn’t allow separation between the owner’s business and personal expenses.
Thanks to the significant advances in technology, you can now access tools and applications that deliver the same level of complex data only larger companies used to have. Embracing software, cloud accounting services, and other technologies can take your venture to the next level — it helps enhance efficiency and organize the information you need for decision-making and tax purposes. Besides, invoicing process automation helps your business generate invoices faster, be accurate, and ensures proper reporting.
Mind Your Debts
There are numerous metrics you can use to determine where your business stands regarding debts. If your business loan debt ratios are relatively high, you may want to discuss with your creditors and negotiate for milder terms. While a rate reduction may be hard to warrant, applying for longer repayment terms may seem like a realistic approach.
Expanding your business too quickly can be a high risk you may not want to take. As you accelerate and sell more, you first need to spend more, buy more materials or hire more employees. If the time amount between your boosted cash expenditure and increased sales is too long, you could end up starving your business for cash. So, ensure you take preventive measures when expanding your startup, identify potential financial risks and develop a business growth plan that avoids long delays between cash outflow and inflow and focuses on managing cash flow.
In a Nutshell
When your cash flow is running healthily, so will your business. This positive association makes an easy way to expand your small business and keep the cash flow healthy. Ensure you include these simple strategies in your roadmap to maintain the money flow positive to grow your business.