In business, cash is king. At Marzano Capital Group, we are always looking for ways to help our business owner clients manage the money flowing into and out of their companies. Improving business cash flow makes it easier for owners to run their business to help fund their personal and business goals. Here are five things business owners can do to help improve cash flow.
Create a Cash Flow Forecast: A cash flow forecast is a document that helps estimate the amount of money that will move in and out of your business. A rolling 12-month forecast is best practice for most companies. It will allow you to see where to expect surges in expenses and be prepared to address it.
Generate Recurring Revenue: A recurring revenue model produces predictable, stable payments with the expectation for them to occur at regular intervals in the future. If your product or service doesn’t have a natural recurring revenue model, you will need to implement a predictable sales process that produces a steady stream of new customers.
Audit Expenses: The devil is in the details when it comes to business expenses. Negative cash flow is often found in fixed assets with ongoing monthly payments, such as vehicles, business equipment, and services. As a business owner, you should perform routine audits of insurance, technology equipment, services, and other ongoing expenses to verify you’re not spending money on things that are no longer needed.
Build Retained Earnings: In accounting terms, an emergency fund for a business is called retained earnings. In the life of your business, there are going to be periods of time you are going to need cash, and bank financing may not be an option. You will be faced with an unexpected challenge or opportunity and retained earnings, or your emergency fund will be your only source of cash.
Understand and Secure Bank Financing: A small business line of credit (LOC) is a predetermined credit limit, one that you use as you need. The biggest advantage of a business credit line is that you only pay interest on the funds you actually borrow. Keep in mind that the money has to eventually be repaid, so we advise only using this option when you are confident you will be able to pay back the funds.
Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through Independent Advisor Alliance, a registered investment advisor, Independent Advisor Alliance and Marzano Capital Group are separate entities from LPL Financial.
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