Posted by Dave Lorenzo - Business Coach

Entrepreneur provides us with Seven Tips for Improving Cash Flow.  They are:

1. Require a down payment on projects so that your customers fund the project, not you.

2. Set your terms to be payment in full upon completion. Don’t extend out 30 or 60 days after you’ve completed your work. 3. Negotiate terms with your vendors for 30 days or more so you have an opportunity to complete the work, bill your customers and receive payments prior to paying your vendor.

4. Have a collection process in place, and follow through. When your customers delay payments, they’re using your cash. You need to ensure that you’re being diligent in collecting from your customers.

5. Set up a line of credit at your bank that you can use in case of emergency.

6. Factoring of your receivables allows you to sell your receivables and get cash now instead of waiting 30 or 60 days. There’s a fee for using a factoring service, so you need to ensure that the benefits of getting cash today exceeds the cost you’ll pay for that expedience.

7. Minimize the amount of draws you take personally from your business. Each dollar you take from your company reduces the amount of cash flow you’ll have available for the business to grow.

There’s nothing earth-shattering about this list of tips.  Most entrepreneurs will consider these things solid business practices.  The key take-away is this:  Cash flow is the most important component of your business.  If the money coming in does not surpass the money going out, you will not be in business for very long.

Think of cash in the same way you think of blood in your body.  If you get a small cut, you patch it up and continue about your business.  But several small cuts, bleeding at the same time, can be too much to care for.  The best option is to not get cut at all.

Filed under: Business Finance
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