"Number one rule of Wall Street. Nobody, I don't care if you're Warren Buffett or if you're Jimmy Buffett, nobody knows if a stock is gonna go up, down, sideways or in [circles], least of all stock brokers, right?” - Mark Hanna, The Wolf Of Wall Street
The same is true when building a small business. We can read all the signs, pay attention to what other business owners are doing, adjust our strategies as needed… but the reality is we don’t really know what’s going to happen. Recession or not, we simply cannot predict the future.
So we can let that cause panic, prepare for the absolute worst, stop investing, and just be filled with a “woe is me” type attitude. OR we can see the opportunity in this obstacle and problem solve where we can.
Cash flow is one of the obstacles that has the potential to put you out of business, but you can learn how to manage it well and even improve it!
Maximize The Money Coming In
If you are having consistent sales but feel like your cash flow isn’t where you thought it would be. Your bank account isn’t as full as you think it should be. There never seems to be enough money to cover the bills when they are due. Or the panic of “will enough come in before the bills are do” is a frequent thought. These can all be signs to double check your profit margin.
Calculating your profit margin helps you determine whether or not you are priced appropriately to cover all of your costs. It also helps you do a “gut check” on whether or not you are being paid well for the value you are providing. (If you are struggling with calculating profit margin I walk you through it step by step in the Profit Plan Blueprint which you can grab as my gift to you by filling out the form at the bottom of this page and telling me where to send it.)
Next, you can also look at the payment expectations of your clients. Do they pay in advance? Do they pay the day the service is performed? Do they pay afterwards when you send out an invoice?
In the service industry, it is very common to pay upfront. If you are sending out invoices and having your clients pay after I would highly suggest updating your payment terms to have your clients pay upfront versus after.
When you send invoices after you are chasing money. By having a client pay upfront you are allowing cash to flow more easily into your business and not having the issues of sending a client to collections for lack of payment.
Both making sure your profit margin is set well and ensuring your payment terms with your clients allows for easier cash flow into your business will help maximize your cash flow.
Minimize The Money Going Out
Make a list of your recurring expenses - monthly subscriptions like Canva, email service provider, or website fees are a few examples. These are expenses you know you will be paying monthly. This list is just an example. It looks different for every small business owner.
Then consider when you pay your bills. Do you pay all your bills for the month at once? That would require a larger amount of cash to be available in your bank account when all the payments need to be made in say one day or one week.
Or do you pay them staggered throughout the month? This would allow cash from clients to flow into your account throughout the month as you get sales and then have payments going out throughout the month versus all at once.
Either way you decide to pay your expenses, knowing what your recurring monthly expenses are is necessary in understanding how much cash you need flowing into your business in order to pay your bills without taking on debt to pay them.
Pro Tip: Is there a way to negotiate a better rate? Could you pay a recurring expense quarterly or annually instead of monthly to have a lower payment?
Project Your Income
- How many sales do you typically have in a month?
- Is it the same every month or do you have busy and slow seasons?
- Do you have any revenue streams creating recurring revenue, such as a membership?
- Do you have any other forms of income coming into your business?
- Make a list of every service you offer and how many clients you can expect to serve.
- Make a list of your recurring revenue streams and how much money can be expected.
- Make a list of all other revenue streams and how much money can be expected.
I recommend doing this once a quarter and looking ahead to the next 3 months or twice a year and look ahead to the next 6 months. You can even look at the next 12 months.
The important thing is to look at it on a monthly basis to know whether or not you’re meeting your projected income expectations for that month. Goals and projections are great, but they are not money in the bank. You need to continue monitoring your actual sales against what you thought would be sold to know whether or not you are on track to hit your goals.
If you are meeting sales expectations, you know you can keep operating as is.
If not, it allows you time to course correct and try new marketing strategies, invest in more advertising, adjust what you’re offering, add an additional revenue stream, and so on. The point is when you know you aren’t meeting your income goal expectations it gives you time to focus on what is and is not working to create a stronger strategy to increase your cash flow.
What Now?
Cash flow does not need to be an obstacle to your business, whether you are facing a recession, slow season, or just figuring out how to get your business off the ground.
You can maximize the money coming in, minimize the money going out, and project your income to allow you to better manage your cash flow.
If you found this post helpful….
I would be so grateful if you would take a moment to pass it along to a business friend right now!
