We’ve talked about cash flow before. It’s the lifeblood of your business, so it’s important to pay attention to it. And whether your company’s cash flow is high or low, there are always strategies to improve it.
What causes that beginning-of-the-year dry spell?
Every business is different, but many businesses experience a dip in cash flow in January and sometimes into February. There are many reasons for this. You may have followed our advice and disbursed funds to invest in your business at the end of the previous year, in order to reduce your tax burden. If you are a professional services business, your project load may wind down at the end of the year, creating a situation where you’ve billed out all your projects and must now focus on starting new projects that will take time before they can be billed.
Cash flow stagnation creates a chain reaction that occurs all throughout business: if your clients and customers experience a slowdown, then they will be slower to pay you, impacting your cash flow, which impacts your vendors’ cash flow in turn. It becomes a vicious cycle.
What do you do when your cash flow is more of a cash trickle?
5 tips to manage your cash flow:
- First off, don’t panic. If you look at previous years at this time, you will likely see that this is a typical pattern in your business, as is it for many businesses. Be reassured to know that even large companies go through this, you’re not alone!
- Plan for the future. Not sure how your cash is–well, flowing? We can help you with a cash flow analysis to determine your business’ cash flow pattern over time, and develop a plan to help you weather the slower seasons.
- Tighten the belt. Slow cash flow can motivate you to take a good hard look at business expenses and trim the fat. This year, one of our clients found that she was paying for 3 separate cloud storage providers. She had put one solution in place, added another through her mobile phone, and when she upgraded still another service last year, she neglected to cancel the original plans. She quickly eliminated the excess subscriptions, freeing up funds.
- Follow your own pattern. Obviously the best case scenario is to pay bills on time, but in this case, you may need to wait a bit. That doesn’t mean to default on payments, but if you’ve always been a pay-it-as-soon-as-you-get-it type of person, there is no harm in using the grace periods you are given to pay your bills, prioritize types of expenses, or even negotiate new payment terms that allow you some breathing room.
- Look at your credit. When cash flow is low, many companies must dip into their credit line to keep things moving along. If you don’t have a credit line, you may be under stress to pay your bills. Now may be the time to look for good lending, to establish a credit line to get you through the slowdowns.
Remember, this too shall pass.
The long winter ends, and usually by the time spring buds are peeking out, things are already turning around. So breathe, and wait this out. Before you know it, your cash flow will be as fluid as spring rain again!