Cash Flow Tips for the Service Industry

Prioritizing cash flow strategies should always be on your mind when outlining an effective business plan, especially if you’re a small or medium-sized enterprise. Why? Your cash flow actually shows you the amount of money moving within your business rather than what you’re waiting for via accounts receivable.

Following a business plan which focuses on cash flow has the advantage of letting you know the exact dates that money will be moving in and out of your account. Knowing these dates is imperative to crafting an effective business plan and handling your expenses. If your cash flow is positive, then you’re making more than you’re spending; the opposite is true for a negative cash flow. Consider the ways in which this affects your business – does your equipment require maintenance? Do loans need to be repaid? Can you cover payroll? All of these variables depend on maintaining a positive cash flow. That’s why we’re outlining some strategies to help you do just that.

Projections

The first step you can take in maintaining a healthy cash flow involves mapping projections. Preparing cash flow projections for the coming month, quarter, or year inside of accounting software (or even a spreadsheet) will help you keep track of your inflows and outflows. This will let you know whether you’re in the red or the black, and if you can afford to take on any risky expenditures.

Profits

Analyzing the profitability of your products and services is another key process that will help you increase cash flow as you decrease expenditures on low-selling variables. If your profitability isn’t what it should be, then you could consider analyzing your prices. Adjusting your prices and checking for consumer feedback can be potentially rewarding when it comes to maximizing revenue.

Payments

Increasing the speed of your cash inflows is another strategy to influence your cash flow. To do this, focus on sending out your invoices more quickly and see if your clients are willing to pay electronically to speed up the process. You could even charge interest on slow payments, but it’s up to you whether this is right for your business. If you’re having trouble maintaining a steady cash inflow, then charging interest and potentially scaring away clients may be too much of a risk. However, it could be the right choice to ensure speedy payment if that’s something you’re lacking.

Paying Attention

Speaking of invoices, paying close attention to your accounts receivables by tracking what you’re owed, collecting payments in a timely manner, and determining who is past due will help you increase cash flow. If you’re not on top of these things, then it can seem like you have less cash available than you should. If after checking these aspects you do find yourself in a position with less cash on hand, then consider any expenditures that could be lessened. For example, you could start with your equipment – try leasing any expensive equipment rather than purchasing it. In the short term, this is an effective way to lessen financial stress on your business. It’s also worth considering that equipment leases can qualify you for helpful tax credits.

Invoice factoring is another method you have at your disposal, if you need invoices turned into cash fast. Here at J D Factors, we can walk you through the process and help your business develop the strategies necessary to sustain a healthy cash flow.