How to maintain a healthy cash flow

Cash flow is without a doubt the main priority in your business.

It would help if you had cash coming in regularly to ensure that you can continue operations and pay your staff and bills on time. However, cash flow can be unreliable when running a business, and late customer payments or unforeseen costs can cause massive disruption. It’s normal to expect a temporary period of negative cash flow as you grow since you have to spend before you gain the rewards. 

So how can you maintain a healthy cash flow despite these circumstances? It may sound unnerving, but it simply requires some thought and common sense. Read on to discover how to keep your cash flowing. 

1.Get Your Invoices Right 

Your clients won’t pay you on time if you send out incorrect invoices; this harms your cash flow. All of the information on your invoices needs to be accurate, including a pricing breakdown. Ensure all of your payment details so that it’s as easy as possible for your clients to pay you. This saves going back and forth, ensuring that you’ll have money in your bank account sooner than later.

You must hash out the payment details upfront when you sign a new client. Many business owners often forget this in excitement and then waste time sorting it out. During the onboarding process, make sure you understand whom you should send the invoice and whom to contact if any issues arise. Agree on the payment date or make sure that the client understands when they have to pay in relation to receiving an invoice. 

2.Send Your Invoices On Time 

Late invoices result in late payments. You’d be surprised at how many business owners are relaxed about sending out invoices, which leads to cash flow problems later on. Invoicing your clients on time is a simple yet effective way to ensure that your cash flow stays healthy. If you find it challenging to keep on top of invoicing, set aside time each week to do it or consider investing in invoicing software. You need to keep on top of payment deadlines and know which clients are yet to pay. This allows you to send a polite nudge ahead of time and chase up any late payments.  ‍

Need some tips on effective invoicing? Be sure to check out our blog on this by clicking here. ‍

3.Review Your Payment Model 

If your clients pay 100% of your fees after completion, you’re taking a giant leap of faith. It’s wise to require a deposit or upfront payment to ensure that you don’t end up out of pocket. 

It’s worth implementing late fees to encourage your clients to pay you without delay. They’re less likely to forget or try to delay payment if doing so will incur a charge! 

4.Create a Calendar 

Cash flow isn’t just about money coming in; you need to know how much you’re paying out and when. Create a calendar to keep track of your bills and taxes, so you know when your cash balance will take a dip. This allows you to prepare for any expenses and create cash flow estimations. Allowing you to make payments on time is crucial for maintaining a good relationship with your lenders, suppliers and staff. 

5.Create Cash Flow Forecasts 

Expanding your business often requires spending more than you currently earn, creating a short-term loss. It’s essential to make accurate cash flow forecasts when planning for growth to expand your business safely and affordably. It’s no good expanding if your company has to go penniless to do so. 

Creating cash flow forecasts can be complicated, but there are forecasting tools to help with this. An accountant can also be extremely useful in developing these projections and adjusting your growth budget accordingly. 

6.Prepare a Safety Net 

It’s never a bad idea to create a safety net. Ensure that your business has a cash reserve so that unforeseen costs don’t break the bank. Life is unpredictable, and no matter how carefully you plan, there will always be unexpected expenses. An emergency cash reserve gives you breathing space and means you can maintain a healthy cash flow even when you have to suddenly pay out for equipment repairs, hidden fees or costs that you failed to account for. 

Keep Your Money Moving

A stagnant cash flow will not only cause you to lose money and missed growth and investment opportunities. If your cash flow is negative for too long, your business will no longer be able to operate. It’s essential that you apply the above strategies to maintain a healthy cash flow and guarantee the survival and success of your business.