Cash flow. When you think about it, that is a rather descriptive term. It is not called cash splash or cash trickle for a reason. Instead, the word ‘flow’ suggests a constant and sustainable movement of money in and out each month — hopefully trending positively towards your pockets.
While the concept of cash flow is rather easy to grasp, some business owners in the greater New York City and Tri-State areas struggle to cultivate a healthy cash flow themselves. Because of this, we will be using today’s blog as an opportunity to discuss some of the things that you should know about cash flow as a new business owner.
Continue reading to learn more.
Spending More Than You Make
Whether you are speaking in terms of your personal finances or the finances of your business, there is nothing worse than spending more than you make. That is how debt is created. As a new and emerging business, it can seem easy to justify spending more than you have to pressure initial growth, when in reality, overspending usually ends up being the downfall of new businesses.
For example, customer acquisition costs money. You might spend money to develop and refine your product or service, pay for marketing, or pay for mailing lists, but if those techniques don’t provide you with immediate success, you might find yourself in a hole.
To avoid making a mistake and overspending, consider consulting our team to discuss your options, as well as some ways that you could gain access to more liquid capital.
Adjusting Customer Payment Terms
As a growing business, it is important for you to optimize how incoming transactions function — and to make payments run more smoothly you have to allow customers time to pay. In most cases, businesses will offer their customers 30, 60, or 90-day terms so that the customer can make flexible payments.
While adjusting payment terms is a great way to provide your clients with the flexibility that they need to do business, it can sometimes restrict your cash flow. After all, giving someone a 60-day payment term can be damaging to your cash flow if you really needed the money in 30 days.
Luckily, there are a few ways that you can avoid this issue, with the first being enforcing stricter payment periods and the second being doing business with a factoring company such as ourselves. By selling the invoices of slow-paying clients in exchange for immediate capital, you can avoid stagnant periods of cash flow.
Growing Too Quickly
As a business owner, it is more than likely that the term ‘quick growth’ makes you salivate. While yes, the intent that you likely have behind your business plan is to grow quickly and make more money, there is such a thing as growing too quickly. That is why sustainable growth is so heavily emphasized in business development.
Say that you have one storefront that is extremely cash flow positive. It might seem like the right decision to open up 10 more storefronts in other cities with the same target demographic right away. Because, after all, the first storefront did so well, right? While it might seem like a good idea to take a leap forward, there is no guarantee that you will have the same success in all of your new locations, and if you don’t, it could be the end of your business as you know it.
Instead of putting so much pressure on your cash flow, consider growing more sustainable, opening a location or two at a time and not moving forward until each location becomes cash flow positive. In doing so, you can save yourself from future money issues.
What Is The Solution?
When it comes to managing your cash flow, it is important to make educated decisions that have been carefully considered. In fact, the best way to make sure that your cash flow stays positive is to treat it like a health issue.
Coronary heart disease kills over 370,000 people each year. Of those 370,000 deaths, it is estimated that 80 percent of the people that developed the disease did so because of preventable factors like obesity, heavy drinking, unhealthy diet, and poor physical health.
The same thing goes for your business and its cash flow. Many businesses fail because of preventable factors like spending too much, growing too fast, and implementing poor payment terms. So in order to avoid closing shop before your business takes off, consider working with a factoring company like ours, here at the Hedaya Capital Group, so you can get advice and aid from industry-leading professionals.
Contact Us Today!
If you have any questions about cash flow management, or what we can do to help you create a plan towards a positive cash flow, we urge you to get in touch with us today. So contact a member of our team or fill out the form below for more information. We look forward to hearing from you.
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