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The cash flow of your business has the potential to shape its future, both short and long term.
That said, the way you manage that cash flow can play a disproportionate role in your future, contributing to the growth, stagnation or even decline of your business.
In other words, your approach to cash management can ultimately determine the fate of your business. And although seldom recognized, your approach to cash management has the potential to matter as much, if not Following than the real merit of the products and services.
If you don’t manage your cash flow properly, you won’t have the opportunity to grow your business as planned. Strategically manage your company’s cash flow and the stage will be set for your vision to come to life, especially as a brand that is both profitable and able to stand the test of time.
The challenge is to take control of the cash flow. However, you can overcome this obstacle with proper cash management practices.
Seize the opportunity to proactively manage the cash flow in and out of your business, and you’ll be able to cover expenses, pay off debts, and provide income to investors. Good cash management also allows for continuous reinvestment in operations, which in turn helps your business scale as quickly as possible.
The bottom line is this: Cash flow is inextricably linked to the operation of the business. If your business is having negative cash flow, it’s time to raise the bar by removing this critical barrier to continued growth.
Here’s how to do it:
Related: How To Better Manage Your Cash Flow
1. Use data to make smart cash management decisions
While no one has a crystal ball or a clear vision for the future, everyone can more or less access market research that contains insightful and data-hungry business forecasts. Careful analysis of these forecasts can provide the information needed to shape your business’s spending while maintaining critical restraint. In particular, it is useful to take a close look at reports relating to your specific industry and niche.
When reviewing forecasts and reports, focus on key performance indicators (KPIs). KPIs provide objective data that helps your business overcome cash management hurdles rather than relying on your own subjective perspective or instinct to make important decisions.
Analyze brand awareness metrics to find out if your target demographic is aware of your added value. If brand awareness is lacking, stagnating, or even decreasing, you have every interest in launching a strategic inbound marketing campaign, ideally highlighted and continuously promoted by social networks.
Customer acquisition costs, commonly known as CAC, are particularly important in the context of cash management. The CAC metric helps determine whether marketing and sales efforts are delivering the desired return for their money.
Another metric, commonly known as CSAT (Customer Satisfaction), can also tell if your current customers are satisfied or disappointed with your services.
Related: 5 Hard-Won Cash Management Lessons For Entrepreneurs
2. Streamline your operations with the right technology
Early stage businesses often struggle with high levels of debt. Starting a business requires a delicate balance, as debt obligations must be honored even when sales fall short of expectations. Money spent on overhead eats away at profit margins, often to the point where many companies remain in the red for the foreseeable future. Think twice before you cut costs.
The best approach is to implement technology solutions that streamline your operations without cutting back on dedicated overhead funds. For example, using specialized technology to perform certain administrative functions (those that are repetitive and can be put on autopilot) can save a considerable amount of money.
Software that helps manage inventory can also help reduce inventory and production costs even further. Streamline your operations with financially prudent solutions and your team, as well as your overhead, can go even further, allowing you to tackle the challenges that help your business scale much faster.
Related: 5 Cash Management Tactics Small Businesses Use to Become Bigger Businesses
3. Understand that money is needed to add to the bottom row
It is often said that it takes money to make money. In the business context, this means that most companies need significant capital to get things done and to keep a competitive and profitable business on the road.
If your customers aren’t meeting their financial obligations, ask them to pay as soon as possible. This does not mean that you should redirect unpaid invoices to collections.
Instead, it’s in your best interest to contact customers to remind them when payments are due and maybe even offer a discount for prepayments. Accounts receivable solutions available in the cloud that deliver automated messages reminding customers of payments due can also help maximize your revenue.
If your customer outreach efforts aren’t generating the expected revenue, consider changing the payment terms. Require customers to pay at least a portion of the total when your product or service is rendered. Consider switching to a fee-driven model, where you provide services for specific, predefined payments each month. Alternatively, it may even make financial sense to switch to a prepayment system where customers pay early or well in advance of the payment due date.
Turn your weakness in cash management into strength
Make these tough decisions to generate positive cash flow, and you’ll have the money to execute your strategic business vision, pursue healthy operations, and serve customers without disruption.
Don’t assume that you need years of experience as a market analyst to make profitable trading decisions. By targeting your business’s cash management inefficiencies and making the necessary changes at the right time, it won’t take long to prime the cash pump needed to propel your business to its full potential.