Improve Your Small Business Cash Flow
3 Simple Ways You Can Better Manage Your Cash Flow
Cash flow can be a bit tricky and unpredictable. There are some days cash may literally “just flow” into your business while other days the cash stream can be dryer than the Sahara desert during a heat wave. The honest truth is many profitable businesses have a negative cash flow from time to time. Sales can be volatile and that is why we here at Evolocity Financial Group advise our merchants on how they can best manage their monetary ebbs and flows before choosing a financing option. Let’s take a deeper look into three of our most common cash flow tips.
1. Avoid clearing your bills all at the same time, stagger your payments
Many large reoccurring businesses expenses like rent, utilities, and Internet tend to have the same pay cycle. This means that one day a month your cash flow could be taking a major hit if you’re paying them all at the same time. The sheer unpredictability of your cash flow may cause you to fall behind if you happen to fall into a slow period. You want to avoid having to dig your business out of a hole so planning your billing cycle strategically is the key. While all your bills may be due within the same monthly period, the “pay by dates” can differ and you can use this insight to your advantage. We created our financing options, particularly our Merchant Cash Advance with cash flow in mind. Our merchants repay small amounts on a daily basis so they can avoid having to pay large, lump sum payments in one go, which can have a pretty significant impact a small businesses’ cash flow. Take a page from our book and apply the same thinking; stagger these expense payments wherever possible. For example, pay your rent one week, your utilities another, and so on versus sitting down once a month to clear all your bills in one shot. This provides some breathing room in the event of a short-term slump in sales.
2. Plan your rainy day fund and secure financing before you need it
Every business needs a little extra capital at some point, be it for renovations, unexpected expenses or other costs but securing financing from traditional lending institutions like banks can be a lengthy process. It’s a good practice to anticipate your businesses financing needs before they actually arise to prevent some unforeseen expense from putting a major dent in your cash flow. As soon as your business is eligible, see what your options are. Apply for a line of credit with your bank and inquire about financing with alternative lenders, like Evolocity. If an unaffordable expense comes rolling around unexpectedly, securing a small amount of financing to act as an emergency fund will give your business something to fall back on without throwing a wrench into your financial groove.
3. Know your highs & lows inside out and plan accordingly
We work with many merchants whose businesses are largely affected by seasonal highs and lows. Take, for example a hotel situated near a ski resort. The ski season sees booming business and revenue is coming in as quickly as the snow falls. Come spring however, the snow melts away and with it most of the business’s incoming cash flow. Without proper planning beforehand it can become difficult to cover operating costs in the off-season. Understanding the seasonality of your business can help you plan ahead for these situations. Our hotel example is an extreme situation of course, however the fundamental principle applies to all industries in some form or another. The seasonal peaks may not be as drastic for your business, but they’re present nonetheless. It’s crucial you understand your particular business cycles so you can plan staffing and expenditures accordingly.
Being in complete control of your cash flow just isn’t possible; there’s no magic crystal ball to foretell your future sales, as nice as that would be. Your primary goal should be to understand what works best for your business so that you can manage the unpredictable ups and downs in the most effective way possible.
A financing option that has flexible repayment versus a fixed repayment structure such as a Merchant Cash Advance is an excellent option for businesses that experience more intense seasonality as it allows them to tailor their payments according to their sales.