Cash flow

Cash flow is always a critical part of every small business—, especially for startups. From keeping the lights and phone on to keeping the computers humming, and the all-important payroll, without cash flow, it doesn’t happen.
Converting leads into sales brings in the much-needed cash, but once you have it, are you managing it right? If you don’t manage cash flow well in your first year, you may not see the second year.
Your company’s cash flow boils down to three fundamental components:
• Accounts receivable—what your customers owe you for your products or services
• Accounts payable—what you owe vendors and suppliers for their products or services
• Shortfalls—when you don’t have enough. We hope you never have them, but they do happen sometimes.
Maximizing cash flow while minimizing cash outlay is always a challenge for a small business, and it may require some dexterity in avoiding shortfalls. But to keep your business moving forward, you’ll be managing all three.
Here are five ways small businesses can help keep their cash flow coming in:
1. Know where your break-even point is. This is the point where you’ll start making money. Knowing where it is won’t immediately increase your cash flow, but will help you recognize the point where you get to profitability. Until you get there, know your break-even point and stay focused on getting there.

2. Use a monthly cash flow spreadsheet. SCORE has a free Excel template available for download. It comes with complete instructions, guidelines definitions, and built-in formulas that take care of your calculations automatically. Know where your money is going, how much you need to bring in, and keep track of everything. Keep your spreadsheet available in your DropBox or other cloud storage area, so you’ll be able to access it anytime.

3. Maintain cash reserves. Most businesses find themselves with cash shortfalls occasionally. With a “cash cushion,” you and your company can concentrate on increasing cash flow without the shortfall cutting into your business.

4. Anticipate your business’ future needs. Keeping good records is essential to seeing what you have and what you may need. You’ll also be able to see a shortfall coming, rather than be surprised by it. Cash reserves can help, of course, but you can also consider starting a relationship with a bank, opening an account for payroll and company expenses. When speaking to your banker, let him or her know that you may be interested in obtaining additional financing later and that the accounts are partly for that purpose. Build relationships with the banking community before you need them so that they’re available at that time. Remember that anyone who loans your business money is primarily interested in getting that loan paid back.

5. Collect receivables ASAP. Your company may not have 60 to 90 days to wait, so encourage your customers to pay at the time of service, or up front, depending on your business. Offer discounts or incentives for quicker payments, such as a discount for immediate payment or payment within X days. You can also penalize late-payers with penalties, politely emphasizing the need to pay on time.

6. BONUS—Invoice Factoring. This is a service that lets you access the cash from those receivables immediately, bringing it in while you outsource your accounts receivable functions. The factoring company buys your invoices and immediately sends your funds, and collects their fee when the customer pays your invoice. The company will look at the customer’s creditworthiness, not your company’s. This option is ideal for new small businesses, or those with damaged credit. You’ll receive the money you’re owed, and never have to worry about when your customers will be paying you.

Interstate Capital’s invoice factoring service has been helping companies just like yours raise capital quickly without debt since 1993. We work in such diverse industries as manufacturing transportation, staffing and oilfield services.
Get an instant online quote and find out about our debt-free solution to improving your cash flow. You can also call us to talk to us about how we can help your business.