Cash flow is like blood. Without it, businesses can’t survive. They can’t cover payroll, keep the lights on, or even pay your accounting bill. To help your clients avoid these issues, you may want to help them identify ways to become cash flow positive.
Cash flow positive is when there’s more cash flowing into a company than flowing out of it. The concept sounds simple, but as you know, achieving this balance can be complicated. A business can look fabulous on paper and have all kinds of projected profits but still have no cash in the bank.
To help your clients improve their cash flow, start by looking at their receivables. Are they setting tight enough deadlines for clients to pay their invoices? Do they need to demand partial payment upfront, offer discounts for early payments, or embrace more severe collection activities? All of these measures can be essential if your client’s invoices aren’t being settled in a timely fashion. Similarly, if your clients are constantly facing unpaid invoices, they may need to start doing credit checks before agreeing to invoice new clients.
In some cases, the bills may all be paid on time, but your clients may not have enough sales. In this situation, they may need to change up their marketing or experiment with new price points. For instance, maybe if they lower their profit margins, they can sell more items and bring in more cash over all. In still other cases, loans can help. If your client is working on a huge contract but doesn’t get paid until the end, it may need to take out a loan or a line of credit to sustain cash flow. This can also apply to seasonal businesses.
In addition to looking at the funds coming into the business, take a look at the funds flowing out of the business. Can your clients save money on overhead costs such as rent and utilities? Are they being efficient with payroll? Can they lower costs for materials or negotiate discounts with their vendors? These are all issues to consider.
When you guide your clients toward being cash positive, you help them stay afloat, but you also help yourself. Remember, when it’s time to pay your invoice, your clients need cash on hand to make that possible.