To help you effectively manage cash flow in your entrepreneurial endeavors, we’ve gathered twenty insightful tips from CEOs and Founders. From leveraging drop-shipping and inventory planning to accelerating cash receipt with electronic methods, these practical techniques will guide you in maintaining healthy financial liquidity.
- Leverage Drop-Shipping and Inventory Planning
- Offer Annual Billing Option in SaaS Business
- Adhere to a Solid Budget
- Prioritize Cash Inflow and Outflow Prediction
- Refrain from Unnecessary Expenditures
- Use AI for Financial Task Organization
- Implement a Cash-Flow Forecasting System
- Combine Diligent Forecasting with Contingency Fund
- Extend Client Payment Terms for Revenue Buffer
- Establish a Cash Reserve for Unexpected Expenses
- Use a 13-Week Cash Flow Forecast
- Implement Rigorous Invoicing and Payment System
- Maintain Low “Days of Sales Outstanding”
- Adopt a Six-Month Cash-Flow Forecast
- Apply Zero-Based Budgeting Approach
- Know Your Numbers and Track Cash Flows
- Conduct Credit Checks on Non-Cash Customers
- Invest Within Potential Loss Capacity
- Maintain an Updated Cash-Flow Forecast Spreadsheet
- Accelerate Cash Receipt with Electronic Methods
Leverage Drop-Shipping and Inventory Planning
Don’t pay until you get paid. As an entrepreneur looking to start an e-commerce business, find ways to drop-ship at first. You don’t need tens of thousands of dollars to start a company. There are many U.S.-based manufacturers that will store and ship your product. What’s great about this is that you don’t have to pay for your inventory until the buyer pays you! This strategy is very effective at managing cash flow.
Many companies will quickly outgrow this and decide to order overseas when volume warrants to cut costs. When you outgrow the drop-ship method, it’s so important to have proper inventory planning and forecasting skills. If not, it will drain your cash flow.
Look what happened to businesses during COVID. Most companies over-ordered inventory, ended up sitting on it, and having to discount it at a loss. This could have all been prevented with proper inventory management systems in place. Ordering too much inventory and sitting on it will drain your cash flow.
CEO, Eli & Elm
Offer Annual Billing Option in SaaS Business
For SaaS businesses with a recurring subscription revenue model, one of the best ways to manage cash flow is by offering customers an annual billing option instead of solely focusing on a monthly subscription model. Then, incentivize customers to sign up for the annual plan by offering a slight discount. By doing this, you could significantly increase up-front revenue without any changes to marketing, sales, or cutting expenses.
This is an effective way to raise cash quickly without incurring more debt or raising additional investment. Additionally, annual billing plans will reduce churn related to payment failures on monthly subscription renewals, allowing you to retain even more cash.
Founder, Tech Lockdown
Adhere to a Solid Budget
Managing cash flow has been a critical component of our success in my entrepreneurial career at Diabetic Insurance Solutions. Setting up a solid budget and sticking to it regularly is one practical technique that has proven beneficial.
We meticulously manage our income and expenses to ensure that we allocate finances for necessary needs while leaving room for unanticipated obstacles. This discipline has enabled us to retain solid financial liquidity, guaranteeing that we can continue to provide life insurance to diabetics without interruption.
CEO, Diabetic Insurance Solutions
Prioritize Cash Inflow and Outflow Prediction
I am the primary point of responsibility for our cash flow management. I even went as far as writing a bespoke cash-flow management software, as pre-fabbed packages were not doing it for me. From that angle, I can say:
Prediction is everything. If your only concern is making sure cash outflow is not overtaking cash inflow, you’re missing out on the core reason for cash-flow management. The key is to be able to predict cash inflow as much as possible, so that you can pinpoint a targeted expense number that is not too high or low. You want to spend money now if you can, as that presumably helps the business.
Prediction is the major challenge. It is not difficult to get the number to match up nicely; it is not generally difficult to cut expenses. The key is to know what your inflow will be for a quarter or month. That takes some skill.
Not everyone can write a bespoke system, but your software should have some way to customize your cash flow.
Co-Founder, Unique NOLA Tours
Refrain from Unnecessary Expenditures
Effectively managing cash flow in my cleaning service business involves a practical tip: refraining from unnecessary expenditures. By rigorously evaluating every expense and distinguishing between what’s essential and what isn’t, we ensure that our financial resources are allocated efficiently.
For example, instead of investing in expensive, trendy cleaning equipment, we focus on using high-quality, cost-effective tools that get the job done just as effectively. This allows us to conserve funds for essential operational needs, such as payroll and cleaning supplies. We maintain a keen eye on our accounts payable and receivable, following up on outstanding payments and negotiating favorable terms with suppliers. This keeps cash flow consistent and predictable. We maintain healthy financial liquidity, which is indispensable in the cleaning service industry. It enables us to meet payroll, invest in growth, and respond to unforeseen financial challenges while providing exceptional services.
Small Business Owner, Germicidal Maids
Use AI for Financial Task Organization
In my over 13 years at FlyNumber, managing cash flow has always been vital. Drawing from my experience in the family supermarket business in Queens, NY, I saw firsthand how bookkeepers were swamped with work, handling mountains of paperwork and data.
Fast forward to FlyNumber, where the challenge was magnified due to the intricate nature of our operations. The solution? Leveraging AI to auto-generate SQL queries, streamlining financial tasks that once took hours into mere minutes. This automation helped organize invoices, payment reminders, and even decipher complex tax forms.
My time in Queens taught me the importance of staying organized for financial liquidity. At FlyNumber, AI was the tool that truly enabled me to achieve that. So, my practical tip? Embrace technology to stay organized; it’s simpler than it sounds and can be the key to maintaining healthy financial liquidity.
Implement a Cash-Flow Forecasting System
Effectively managing cash flow is crucial for the success of any entrepreneurial endeavor. One practical tip that has helped me maintain healthy financial liquidity is implementing a cash-flow forecasting system.
To begin, it is important to have a clear understanding of your current financial position. Take stock of your income and expenses, including both fixed and variable costs. This will provide you with a baseline for your cash-flow projections.
With the projected cash inflows and outflows, you can identify potential gaps or periods of negative cash flow. This allows you to take proactive measures to address these challenges.
Regularly monitor and update your cash-flow forecast as your business progresses. This will help you identify trends and take timely actions to prevent any cash-flow issues from escalating.
CEO, Crestpoint Consulting
Combine Diligent Forecasting with Contingency Fund
In managing my residential cleaning business, I’ve honed in on a tip that’s as practical as it is effective: diligent forecasting. Every month, I sit down to meticulously predict cash inflows and outflows. Just as you’d check the weather before planning a picnic, I forecast to anticipate financial storms.
But here’s the clincher – I pair forecasting with a contingency cushion and allocate a fixed percentage of every inflow into this emergency fund. This isn’t just a safety net; it’s the parachute you’ll be thankful for when an unexpected expense tries to yank the ground from beneath you.
Think of it like investing in peace of mind – it ensures that the business maintains its momentum, even when cash inflows aren’t as robust as you’d like.
This dual approach – forecasting with a contingency fund – is a game-changer. It’s not merely about surviving; it’s about thriving with clear financial foresight. And it’s something I’d recommend to any entrepreneur.
MBA – Owner, White Fox Cleaning Services
Extend Client Payment Terms for Revenue Buffer
I run a marketing agency, and one of the most effective ways for managing cash flow is actually giving clients much more extended payment terms.
We typically don’t require upfront payment and often even invoice after the work is done, with a 30-day payment period. This has helped create a time buffer for when long-term and large-retainer clients quit, but we essentially still have two more months to replace the revenue, because of when we receive the payment. We don’t have issues with clients not paying invoices, because we have very clear contracts and outline detailed payment terms.
Furthermore, clients also appreciate the flexibility as well as the responsibility to do good work before we’re paid, so it’s a win-win. Due to this, throughout the entirety of my business, I have always been able to pay all team and operational expenses on time (even early most of the time).
CEO and Founder, AS Marketing
Establish a Cash Reserve for Unexpected Expenses
In my experience as a real estate investor, one effective technique for managing cash flow is establishing a cash reserve specifically designated for unexpected expenses or fluctuations in income. Setting aside a portion of your earnings into this reserve can create a buffer that can help you navigate through challenging times or unforeseen circumstances.
This cash reserve is a safety net, providing peace of mind and financial stability. It’s important to consistently contribute to the reserve and resist the temptation to dip into it for non-essential expenses. Maintaining a healthy cash reserve can better handle unexpected costs and ensure a smoother financial journey in your entrepreneurial endeavors.
Real Estate Investor, Real Estate Exam Ninja
Use a 13-Week Cash Flow Forecast
Effectively managing cash flow is the lifeblood of any entrepreneurial endeavor. One practical technique that I’ve found invaluable in maintaining healthy financial liquidity is the 13-week cash flow forecast. This rolling forecast, updated weekly, provides a near-term view of cash inflows and outflows, allowing for immediate adjustments and strategic decision-making. It’s essentially a detailed week-by-week projection of all expected receipts and payments for the upcoming quarter.
By having this granular visibility, not only can you anticipate potential shortfalls or surpluses, but it also instills a discipline to regularly evaluate and adjust financial expectations based on actual business activities. This hands-on, proactive approach has been instrumental in navigating financial uncertainties, ensuring we stay liquid, and making informed, agile decisions in our ventures.
CEO and Founder, Startup House
Implement Rigorous Invoicing and Payment System
In my experience as an entrepreneur, one essential strategy for effectively managing cash flow is to diligently implement a rigorous invoicing and payment system. This might seem simple, but it’s a fundamental practice that many overlook.
The key is to ensure that you invoice your clients promptly and clearly, with all necessary details. Clearly outline your payment terms, including due dates and late-payment penalties, if applicable. Moreover, monitor the aging of your accounts receivable closely.
This proactive approach significantly enhances your financial liquidity. Timely invoicing means you get paid faster, and it helps in maintaining a healthy cash flow. Make sure you are consistent in following up on outstanding invoices, reminding clients of their payment obligations as needed. By staying organized and on top of your accounts receivable, you can minimize financial gaps and ensure that your business operations continue smoothly.
Founder, CEO, CodeDesign
Maintain Low “Days of Sales Outstanding”
As an executive of a company, one of the key techniques we employ to ensure healthy financial liquidity is maintaining a low “Days of Sales Outstanding,” or DSO. DSO refers to the average number of days it takes for a company to collect payment after making a sale. A lower DSO means we’re able to collect our receivables more quickly, ensuring that cash is continuously flowing into the business.
We’ve been able to achieve a low DSO by implementing strategies such as providing clear payment terms upfront to our clients and offering early-payment discounts as an incentive. Moreover, regularly monitoring and analyzing our DSO has not only helped us maintain a solid grasp on our cash flow but also flags any potential issues early on. This proactive approach ensures that we’re not caught off guard and can take corrective measures when needed.
Lastly, while many factors influence cash flow, maintaining a low DSO has been a cornerstone in ensuring our company’s financial stability and growth.
Managing Director, CBD Oil Ireland
Adopt a Six-Month Cash-Flow Forecast
Our primary cash-flow strategy is a six-month cash-flow forecast. It empowers you to foresee cash shortages, strategically plan, build investor confidence, and adapt to unforeseen challenges. The key to success is maintaining this delicate balance between foresight and adaptability for your venture’s financial health.
CEO, Head Business and Executive Coach, Deliberate Directions
Apply Zero-Based Budgeting Approach
Maintaining healthy financial liquidity requires a keen understanding of both income and expenses. One method I’ve found effective in my entrepreneurial journey is the Zero-Based Budgeting approach.
At the start of each month, I allocate every dollar of income towards various expense categories, ensuring that income minus expenses equals zero. This doesn’t imply that I spend all my earnings, but instead, every dollar has a purpose, whether it’s for operating costs, savings, or investments. This strategy allows me to keep track of my cash flow, prevent unnecessary expenses, and ensure funds are available for any unexpected costs.
Gardening Expert, Founder, Urban Organic Yield
Know Your Numbers and Track Cash Flows
Know your numbers. People are relying on you to pay them on time, and if you make a mistake, there are real-world consequences for your lack of preparedness.
Always keep a long enough runway of cash to give you time to adjust when things inevitably change in your business. If you require financing options, seek those out while you’re in a position of strength, not when you’re a week out from missing payroll.
Always keep track of your cash flows and project them outward to understand your financial picture. You should always know how long you have left before the cash runs out, and then prepare accordingly.
When you keep on top of this, it can be relatively simple. It’s when you get complacent that surprises come along, and you’re forced to lay off staff or close your doors. Barring major external events, there should be no surprises with your financial picture. Have contingencies in place for all reasonable possibilities in your projections.
Co-Founder, Scott & Yanling Media Inc.
Conduct Credit Checks on Non-Cash Customers
Conduct a credit check on any customer who refuses to pay you in cash, especially before you sign them up. You can confidently predict that you will only receive timely payments if the client has good credit. Even if you want to close the deal, the cash flow of your company will suffer from late payments. If you decide to proceed with a sale despite poor credit, set it up with a high interest rate.
Founder and CEO, Tripplo
Invest Within Potential Loss Capacity
In life, as in finance, only invest to the degree you can afford a potential loss. If you lack enough resources to cover a loss, then review your priorities and reflect upon why you want to take greater risks without having a viable plan to manage liquidity when needed. Stay away from mimicking trends as well as following what the competition is doing.
Finances are like a sacred marriage; no one knows what is going on other than those locked within that arrangement, for better or worse. Financial constraints can challenge you to think outside the box, leading to the creation of new sources of liquidity. Track and review your money on a cadence to prevent any surprises. This will also grant you the flexibility to make optimal decisions with less risk, leading to better outcomes.
Founder, Sasha Talks
Maintain an Updated Cash-Flow Forecast Spreadsheet
Planning is king in every aspect of business, but doubly so when it comes to finances. I heavily recommend creating a cash-flow forecast spreadsheet and then keeping it up-to-date as you go, preferably on a weekly or monthly basis. Include all your income and expenses, adjust for uncertainty to some extent, keep seasonal variations in mind, and then rely on it for financial decisions. This will allow you to project your cash flow over longer periods of time and make it easy to see whether the time is right to play it risky, or to play it safe.
Accelerate Cash Receipt with Electronic Methods
Start with the concept that invoicing and waiting for a check to arrive does not constitute cash flow. How 20th century!
Today, money received in the bank account is considered cash flow. Use electronic methods to accelerate the receipt of cash into your bank: encourage electronic payments for online invoices. Consider initiating payment by ACH (Automated Clearinghouse) payments from your customers, which is the least expensive method. It encourages additional trust between you.
You can also accept debit and credit cards as an alternative, and yes, there’s a 3-4% fee you have to pay for credit cards (more expensive than debit cards), but cash flow-wise, it’s worth more to you to have the funds in hand faster, than to gnash your teeth every time the mail carrier doesn’t deliver that check you have been waiting for.
Think of cash flow as a function of the velocity of receipt and clearing into your bank account.
Marc W. Halpert
LinkedIn Coach, Trainer, Marketing Consultant, connect2collaborate.com