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Nine Ways to Generate Positive Cash Flow

Share current LOB: SmallBusiness
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Positive cash flow is essential for your business and the ability to squeeze cash out of existing cash flow is an important skill. Successful owners closely manage cash flow and convert it into capital. SunTrust Business Owner Research shows most business owners are self-funded, and almost 60 percent feel that managing cash flow is the most critical issue they face.

Successful business owners are adept at building cash flow management skills and applying hard-earned lessons to optimally stretch their businesses’ cash. A clear set of nine proven cash flow methods can be applied to your business today.

1. Measure cash more closely

First, you will need to place a greater priority on measuring and managing cash flow and plan ahead by delegating, outsourcing or automating much of your bookkeeping. It’s important to know where your cash goes every month. Conduct a zero-based budget to identify exactly where your cash is allocated. List all your expenses for the last year, and catalog the cash that goes out of the business every month. Pay attention to variations, and create a cash flow forecast. You can’t manage what you don’t measure. Slow-paying customers, large shifts in revenue or inventory and large one-time expenses drive cash flow swings.

Most business owners do not have the time or skills to focus on such specific financial tasks. Put systems in place to outsource, automate and delegate bookkeeping and finance. Consider attaching a line of credit or sweep account to your checking account to smooth cash flow needs. Consult your accountant and banker about automated online banking and financial software tools to make monitoring cash flow easier.

2. Accelerate cash receipts

Expedite invoicing and provide an incentive for faster payments. Accept payments by credit card or online, using merchant services to get the money into your account immediately without the friction associated with paper invoicing, mailing and depositing. Negotiating pre-payment or progress payments can increase the speed of cash flow, too.

3. Control cash payments

Negotiate payment terms that are favorable to you. Many large companies operate on 60-day terms to make it easier to do business with small and midsized businesses. Negotiate with regular suppliers to buy in bulk and pay over time, ensuring payments match cash flow.

4. Share resources

Consider sharing resources before you add fixed costs to your monthly cash needs. Look around your industry or community to find peer businesses with idle or extra people, space, equipment or systems capacity. Many seasonal businesses have available resources during their offseason. By sharing resources or shifting certain services to their offseason, you can reduce expenses.

5. Match expenses to income

Where you can, turn fixed costs into variable costs by cutting the fixed overhead and inventory you need to run your business. Leasing equipment and accessing part-time contractors are examples of converting what could be a large cash outlay into a more manageable monthly expense that matches when the income is actually generated. Tie compensation to activities that generate or save cash, such as on-time project execution, new business referrals and net cost savings. Consider “pay for performance” compensation incentives to more closely link your employee costs to income they generate.

6. Smooth cash flow

Selectively use credit to smooth inconsistent or seasonal cash flow. Many business owners make the mistake of pulling a marketing campaign, before it can generate a return because of bumps in cash flow needs. If you’re confident in your profits and investments, use a line of credit or other short-term cash infusion to even out the bumps and maintain your business investments. Don’t make the mistake of holding personal cash out in non-interest-bearing accounts for the whole year just to supplement your business during a once or twice a year seasonal swing. Invest your personal cash, and use a credit line for your seasonal business needs.

7. Find deals

Assume you are paying too much. Group expenses and shop around for larger ticket expenses. The Internet makes it easier than ever to compare pricing and look for options. Compare what you are paying to others in your industry and community. Seek competitive bids for large expenses. Also, take advantage of bartering, grants, credits, deals and subsidies whenever possible.

8. Increase your speed

Speed saves cash and creates cash. More productive people, inventory and equipment eliminate waste that ties up cash. More efficient jobs lower labor costs and increase margins. Reward employees for time-saving ideas and efficient production.

9. Plan ahead

Create a capital plan before you actually need the cash, projecting what you might need. By implementing systems to improve cash flow, you will demonstrate to others that your business is a worthwhile investment. Cultivate the relationships you will need before you actually need them. Consider accessing small amounts of capital or credit before you really need them to establish working relationships. Talk to your banker about options for financing and capital, so you understand all your options before you actually need the money.

About SunTrust Business Owner Research: SunTrust surveys small business owners and advisors as part of its ongoing business seminars and symposiums. The small business owners attending these events include both SunTrust client and non-client business owners and are representative of the broad spectrum of businesses located in the SunTrust markets. The research cited in this report is extracted from these 5,425 small business owner surveys collected between 2007 and 2011.

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.