There are several ways to evaluate the financial health of a business entity and an examination of cash-flow is a reliable method. Cash-flow, the amount of money that flows through your business—on the plus side is the income generated by revenue derived from sales of your products and services, earnings accrued from interest and dividends, or loans or investments that have been obtained. On the outbound side, cash-flow consists of what is spent on expenses such as office rent and utilities, product inventory, employee wages (1099 NEC and W-2), or business promotion activities, such as advertising or public relations. Cash-flow generated from normal business operations is known as operating cash-flow.

Learning how to control, and ideally enhance, cash-flow in your business is a risk management lesson that has direct impact on the success and longevity of your entity. It would not be a stretch to consider the necessity for prudent cash-flow management an emergency for Freelance solopreneurs, as the B2B sales process becomes more complex and now averages 11 stakeholders and/or decision-makers and continues to lengthen (121 days). Rising consumer prices present yet another worry.

So what can you do to more effectively control your business cash-flow? The short answer is to increase sales revenue and other income and decrease the spend on expenses—if only! Fortunately, there are a number of potentially effective cash-flow maintenance tactics you might implement to strengthen the viability of your entity:

Operating expenses

Generating sales revenue and other income is the most obvious cash-flow engine, but keep in mind that expenses and other spending commitments can quickly empty your coffers and leave you in the red. Let us begin the cash-flow improvement process by reviewing your fixed and operating (selling) expenses and look to see what you can trim.

• Negotiate better terms with vendors and suppliers. Can payment schedules slow down, or payments due become smaller? Inventory and operational goods and services provided by suppliers and vendors are essential line items expenses, but if you just accept their presence in your accounts payable obligations each month without question or exploration, you may be spending more than necessary. Cultivate cooperative relationships with vendors and other suppliers and seek their advice and support if it appears you need to renegotiate prices or credit terms, and/or secure discounts for bulk orders, both of which can cut costs.
• Reevaluate spending. Are you paying for goods or services—like subscriptions, for example—that you don’t use? Can you eliminate some of the line items out of your monthly budget? Over time, small yet unnecessary, expenses have a way of adding up. Rethink your resource allocation, meaning, take a look at where your money is going and confirm that every item has a Return on Investment that justifies the expenditure. It’s easy to forget about or overlook trivial expenses, they can often leave you paying hundreds of dollars, if not more, in unnecessary bills and fees over a year. It’s always a good idea to work to improve your cash-flow management. Take a hard look at accounts payable items and determine where you might cut back.

Invoicing and payments

• Collect payment upfront. The faster your business gets paid, the more cash your business will have to pay expenses, invest in growth, or even to park in a savings account for future needs. Consider charging 10-15% up front as a deposit and don’t commence work until you have it.
• Invoice often. When you are busy doing client work, it’s easy to get behind on administrative tasks—but don’t let invoicing take a back seat. Send invoices on time every month and keep due dates consistent. Doing so will set clear expectations about the financial arrangement between you and your clients and can help you meet your financial obligations and goals. Follow up on invoices that aren’t paid on time when the due date reaches or exceeds 45 days.
• Make it easy to pay. Give your customers options that make it easy to pay. Sign up with a credit card processing company so you can accept credit and debit cards. B2B customers may prefer to pay via ACH, while other customers may prefer payment options like Venmo, PayPal, or Cash App. You want to speed up payments, which are your revenue.
• Charge for late payments. A penalty for late payments that exceed a certain number of days (for example, 60+ days) can urge clients to prioritize your invoices and avoid extra fees. In extreme cases, you can even set a system for collections. Consider debt collection services to get past due invoices paid. This is touchy, however, and you don’t want a client to get angry about a demand for payment and refuse to pay in retaliation. If you decide to introduce a charge for late payments, make sure you give your clients adequate notice in writing and a telephone call first could soften the blow. Maybe the client is waiting to be paid by his/her client?

Increase revenue

• Sell more products or services. Are you relying heavily on email marketing but not really seeing profit from your efforts? Have you become complacent about your social media followers and lost sight of how maintaining their engagement can contribute to future sales and word-of-mouth referrals that bring in new business? Sometimes marketing efforts can become stale and predictable, leaving your customers uninspired and going elsewhere with their business. Audit your current marketing campaigns and determine where you may be able to make changes to jump-start your existing tactics and engage new customers.
• Identify and target new markets. In some cases, this may be as simple as some thoughtful and creative brainstorming that results in new ways you can market your product or service to other consumers based on their needs (e.g., problem/solution marketing). In others, you may need to do some significant consumer research and examine the efforts of your competitors or potential competitors. One great way to identify new markets is to, as noted above, actively engage social media accounts. Doing so can raise the profile of your brand, services and products by expanding visibility that gets your name in front of more potential customers. You’ll also be likely to re-engage lapsed customers as well.
• Raise your prices. Flat or decreasing revenue may be a result of outdated or inefficient pricing. Have you been under-pricing and sabotaging your revenue potential? There are a number of reasons that your pricing may be inefficient, but before you jump into a pricing overhaul, take the time to review all factors and how they’ve changed over the last month, quarter, or year. As part of your evaluation, it’s essential to account for payroll; equipment, vendor and supplier fees; and competitor prices.
• Improve customer service. Excellent customer service can increase customer loyalty and repeat sales, ultimately bringing in more revenue. You may also profit from devising after-sale support to clients, such as training and other follow-up support that will serve the customer. Poor customer service increases churn rates and increases customer acquisition costs.

Administrative

• Forecast your cash-flow. A cash-flow forecast is very useful for multiple reasons. It will help the business owner identify cash-flow shortfalls before they become major problems. It can help the business make decisions about key purchases or investments, and to plan for growth. 
• Set financial goals. Identifying an attainable revenue target is a big part of how a business gets where it wants to go. Your business plan will help you figure out what those goals are, the milestones you need to reach, and how you plan to achieve them. If you don’t have clear goals for your business, this should be at the top of your to do list. 

Thanks for reading,

Kim

Image: © Reuters/Leonhard Foeger. British Pound Sterling banknotes (November 16, 2017)