Maximize Your Business’s Cash Flow!

As many as 82% of businesses fail at the hands of mismanaged or poor cash flow. No matter how big or small a business is, the ability to maintain positive cash flow is critical. The first step is to understand how cash flow works and what you can do to protect and increase it. In this Tally Services blog, we cover small business cash flow and how to maximize your business’s cash flow.

What is cash flow?
In its most basic form, cash flow refers to the cash or cash equivalents a business has coming in and out the door. Businesses are able to grow and succeed if they are able to create a positive cash flow, or one in which more money comes in the door than out, and maintain it over time. As opposed to profit, cash flow refers to the way in which money comes and goes, and the timing of it all. Businesses live and die by their cash flow, and it’s crucial to understand how your cash flow works, the pitfalls other businesses find themselves in, and how to maximize your cash flow in order to grow and thrive.

Cash Flow Problems
Among the 82% of businesses who fail because of poor cash flow, the following factors played a part:

• Insufficient money or capital
• Poorly managed inventory
• Putting too much investment in fixed expenses
• Poorly managing credit and terms
• Comingling funds and using personal funds to run the business
• Faster growth than expected

Knowing the cash flow risks and planning for them will help your business avoid some of the most common cash flow pitfalls.

Keeping Track of Cash Flow
The easiest way to track your cash flow is to use the quick ratio method. This ratio calculates the following: for every $1 your company has in short-term liabilities, you should have $2 in cash and liquid assets. To determine this, add your cash, marketable securities, and accounts receivable together. Then divide this number by your current liabilities. If your ratio every dips to below one, you should work to get more cash in the bank to keep your business from risk of problems resulting from a negative cash flow.

Manage Small Business Cash Flow
In order to keep a handle on your cash flow, frequently ask yourself these questions to help you determine if your cash flow is working in your favor:

• Are my customers paying the business in full and on time?
• Are all my eggs in one basket, so to speak? If my biggest customer or job fails to pay or moves on, does the business have a backup plan and other resources?
• Does the business have enough cash on hand to pay expenses and payroll for the next 90 days (at least)?

Honest answers to these questions will give you a pretty good idea how your business’s cash flow is looking and what you need to do to protect it.

Maximize Small Business Cash Flow
Businesses thrive when they find ways to protect and increase their cash flow. Use these tips to maximize your small business's cash flow:

• Encourage Early Payments and Collect Past-Due Invoices: One of the best ways to protect your cash flow is to encourage your customers to pay on time (or early!) by incentivizing them to do so. This might look like small discounts for full or early payments, or cheaper cost per product for bulk orders and payments. Getting paid early increases cash flow and saves time in the future on collections. If you have overdue accounts, working to collect them will get more money in the door to add to your cash flow.
• Increase Marketing: While there might be an upfront cost, getting more overall business will increase your cash flow and diversify your customer base.

• Check Your Contracts: If you have long-term contracts with suppliers or other partners, see where you can reduce expenses and streamline liabilities to keep more of your hard-earned cash in your coffers.

Partner with Tally Services
If you’re worried about your cash flow or are having trouble managing it, Tally Services is here to help! We’ll meet your business right where you are and help you put systems in place to increase positive cash flow and help protect your business from failure at the hands of cash flow. Contact us to get started!