Move #1: Stop Monkeying With Your Suppliers

Whenever some financial expert advises me to “use your suppliers for financing” I cringe.  Why would anyone do that?

Sure, it’s probably easier to extend payments with your suppliers rather than, say, increase your line of credit with your bank.  But your suppliers are your most important partners. These are the people that you’re relying on to deliver you the necessary products and services you require to run your business and service your customers.  And you’re going to annoy them by monkeying with your payments to them? Bad idea.

Here’s a better idea: pay them early. If they’re still offering discounts for early payments, take them.  If not, ask. You’ll find that a 2% net 10 discount will make you much more money than leaving your money in the bank at close to zero percent interest. You’ll certainly generate more cash that way. But you’ll also be doing something else: building stronger relationships with important people.  Because think about it: which customers get your best attention? The ones who are nice to work with and pay on time (or early)? Or the ones who monkey with your payments?

You know the answer. And so will your bank account.

Move #2: Pay Just Twice A Month

My smartest clients have a firm control over their cash. They strive to create organization over chaos. And one of the biggest ways to create chaos is to let cash fly out of your business without any process.

So here’s what you should do: pay your suppliers only twice per month. That’s it. Pick the first and last Tuesday.  Or maybe the 10th and 25th of each month. Stick to that schedule. Do not make exceptions. Freeze all payments except on those days. Trust me, your vendors will get used to it.

What will the results be? You will have more control over your cash. You will be able to better forecast when your payments will be. You won’t be surprised when it comes time to pay bills and there’s less cash on hand because other payments were draining your bank account. You’ll be able to make sure you have enough available cash to meet your obligations. You’ll then make better decisions over your cash flow and, as a result, you’ll see an improvement in your cash flow.

For good cash flow, order is good. Chaos is bad. Start by taking control of the money going out of your business.

Move #3: Do A Quarterly Forecast

The smartest business owners I know are always looking ahead. They don’t like surprises, especially when it comes to their cash flow. That’s why so many of them forecast.

Forecasting isn’t as hard as you think. Just take your year to date results from your accounting system and add them, by line item, on a spreadsheet. Then go through each line item and think ahead 90 days.

For the most part, most expenses won’t change. You should have a backlog of sales or at least have a good idea of what revenues will be based on the past. You know your payroll, your rent, your overheads. But there will be other cash requirements that will come to mind. Maybe an estimated tax payment due. Or a large payment to a supplier. Or a debt payment, equipment purchase or bonus check.

Do this quarterly. Once you’re in a groove, you’ll find it takes about an hour. The time will be worth it and you’ll longer be guessing about your cash. You’ll have a much better idea of how much cash you’ll have in the future. From there, you’ll be able to make better purchasing, investment, and management decisions. Don’t get surprised. Take control of your cash flow by forecasting it.

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These are just three proven ways to increase your cash flow next year. Want more? Then stay tuned!