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How to remain cash-flow positive

How to remain cash-flow positive

Anyone who owns a business will tell you they’ve spent sleepless nights worrying about cash flow. Even the most successful businesspeople and brightest entrepreneurs have maxed out their personal credit cards to pay wages because of an unforeseen calamity.

All businesses face cash-flow challenges, but in many cases the peaks and troughs can be smoothed out using some creative sourcing and pragmatic accounting.

Great ideas, excellent contacts and market knowledge are all useless if you can't balance what you bring into the business with what goes out in terms of expenditure. Which is why techniques that let you better manage the way money moves through your business are powerful tools for any entrepreneur.

Avoid lumpiness

Any industry that invoices on delivery or at the end of large projects is in danger of hitting a cash-flow wall, especially in industries where timelines can be affected by unknown variables such as the weather. Tens of thousands of dollars can be spent while you’re waiting for the skies to clear, in some cases wiping out margins before an invoice has so much as been written. It’s safer to write contracts that feature gradual payments rather than a single lump sum at the end, as this makes it easier to keep your business operating before the final invoice is settled.

Bread, butter and jam

Another option is to ensure the work you take on includes a range of small ongoing projects as well as large ones. It’s often the small ongoing projects that supply you with your bread and butter – the basic cash flow you need to keep stuff moving and keep staff paid. The big wins, when they come, provide the extra jam you need to help the business grow.

Make before you spend

People who use the phrase “You have to spend money to make money” are either trying to sell you something or will face some kind of cash-flow crisis themselves. Well-run businesses work on the opposite principle – they make money then spend it in order to make more money. So long as you maintain a steady momentum of not spending money until after your invoices have been paid you’ll be able to keep ahead of the bills and continually reinvest in the business.

Managing cash flow comes down to taking the time to work on your business, not just in it. By restructuring your contracts, ensuring you have a stable mix of customers and not spending ahead of your earnings, you’ll eliminate most cash-flow disasters before they even begin.

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