7 Simple Rules to Increase Cash Flow
Last Updated: Apr 23, 2014
Cash flow is the lifeblood to your home business. Without it, there is no business. Period. What could be more important? Turning that flow into a growing pool by following seven simple rules.
Although your income statement might show a healthy profit, it doesn’t amount to a hill of beans if you have no cash flow.
One of the biggest mistakes made by new home business owners is allowing clients and customers to buy now and pay later. In other words, extending credit.
Credit is for banks and large corporations, not for you as a home-based entrepreneur. Cash flow is the lifeblood of your business. Without it, your business will wither and die regardless of how many sales you’ve made or how much money is owed to you.
Cash flow represents the amount of money coming in to your business through services rendered and products sold, and money going out to cover expenses and production costs.
Your primary responsibility as a home-based business owner is to ensure the flow is consistent with more money coming in than going out so a pool starts to form to hold the overflow. This overflow is what allows you to make early payments so you can benefit from vendor discounts, to take advantage of special deals, capitalize on newfound opportunities, and easily cover unexpected emergencies. As soon as cash flow fails to produce the surplus funds you need, challenges arise and stress and overwhelm quickly follow.
Integrate these seven simple rules to your operating strategies and enjoy the benefits of a steadily growing cash pool.
1. Request payment prior to delivering your product or service. If your service is delivered over an extended period of time and asking for a one-time payment in advance isn’t realistic, divide the payment into segments and request payment in advance of each new time frame.
For example, if you provide weekly house cleaning, consider requesting payment at the beginning of each month in advance of providing your services – or suggest three or six months payment in advance and offer a discount as an incentive. A mere 10 percent discount over a three-month period could put an extra $100 or more into your client’s pocket. Many will jump at that deal.
2. Pay every bill on time to avoid late payment charges and earlier only if special payment discounts apply.
As a hair stylist working primarily with cancer patients, imagine spending one thousand dollars a month on wigs. If the supplier offers 2/10, net 30 as payment terms, you will save two percent by paying your invoice within ten days. That might only be $20, but over a year, it adds up to $240.
Take advantage of this incentive with every supplier that offers it and you could keep thousands of dollars in your business that you would otherwise have spent.
3. Deposit payments as soon as you receive them. Instead of making one or two trips to the bank each month, make them daily or weekly. Letting checks lie around increases the risk of loss. Also, go to a teller when making your deposit. Using an ATM machine removes any evidence you deposited real cash or checks. An employee or technical error or internal theft could create problems you simply don’t need.
4. Use a business credit card whenever possible for travel, meals, and minor expenses. This leaves more cash in your hands and defers payment. Using a card that awards travel miles also helps you cut future travel costs. I’ve enjoyed cruises and free flights to business conferences thanks to air miles.
5. Create continuity sales. Build a product or service into your business that your client could use on a continual basis. For example, if you run a bookkeeping business and your clients struggle with cash flow, recommend bank reconciliation services every month.
Many clients hand a box of receipts to their bookkeeper at the end of each year and cross their fingers hoping they did well. Helping your clients understand exactly where they are each and every month is an exceptional service that many will jump at. One client at $30 a month would give you $360. Ten clients at the same amount, paid in advance would give you $3,600 cash at the start of the year.
6. Create something that allows you to do the work once, but profit from over and over again. For example, many of today’s business owners are creating e-books (electronic books) and audio recordings sharing valuable tips, information and knowledge that improve the health, happiness and prosperity of others.
Selling electronic products online removes production costs and provides a steady flow of funds into your business.
7. Invest your overflow. Once you have built a comfortable overflow, consider investing some of it to make it grow even faster for you. Letting a large sum of money sit in your bank account does nothing to accelerate growth. Talk to an investment professional and find out how you can make that money work for you.
Start with these seven simple rules and get creative. Brainstorm ideas for special offers, continuity programs, passive revenue streams and investment possibilities.
Get input from professionals, mastermind members and your coach. You can do it. They can help.
Copyright 2007 Laurie Hayes – The HBB Source