Positive cash flow in a business is a good indication of current performance and we always recommend you regularly review your business’ cash flow statements so that you can take the necessary steps to prevent negative cash flow.
When launching a new business it can be tempting to invest all of your money straight away to ensure your company gets up and running. It’s wiser to resist this urge, however, because the ultimate success of your business relies on the ability to perform long term. If you funnel all of your money into its launch you place your business in a vulnerable position later on when an unforeseen expense emerges. In order to maintain positive cash flow when starting a new company we advise you spend wisely and set aside a portion of your money for future expenses.
Set Up a Line of Credit
Rather than rushing to your bank to set up a line of credit when you have run out of cash, you should arrange it with your bank when your business is doing well and cash flow is positive. Banks will do a full check on your business’ financial records before they set this up and will be more likely to agree if you have sufficient cash flow to pay back. They are also likely to set a higher limit on your line of credit if you reach out when your cash flow is positive.
Keep on Top of Receivables
In order to maintain positive cash flow in your business, you should always make sure to manage your receivables closely. This can be done by keeping a detailed list of what you are owed starting with the most. Time is of the essence when collecting overdue money, you should contact receivables promptly and stick to a short payment time rather than a longer 60/90 day plan. Keeping on top of your receivables is essential to maintaining positive cash flow in your business.
Avoid Late Fees
Provided your cash flow is healthy, you can save yourself a lot of money on late fees by paying your bills/payables on time. Not only do late payments effect your cash flow but, in the case of credit card fees, they impact your credit rating and help you to accrue credit card interest. One possible solution to avoid late fees is to set up automatic payments through your online banking account. Provided you have sufficient funds in your account, by enabling automatic payments you avoid late fees and stay on top of your bills and payables.
Avoid Giving Huge Discounts
When launching a new business it can also be tempting to offer large discounts to potential customers in an effort to gain their loyalty. This type of strategy can be equally detrimental to your cash flow by reducing your profit or devaluing your service. You should reserve generous discounts for retained, loyal customers who meet strict criteria rather than offering them to everyone to make sure your profit isn’t effected and ultimately your cash flow.
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