Finances and Taxes

12 Smart Ways to Never Run Out of Cash as a Business Owner

Paco de Leon Founder of Hell Yeah, Bookkeeping 
How to Stay Cash Flow Positive in Your Small Business

Last fall, I spoke at a conference that culminated with a big circus-themed party, tent and all. There were no clowns, but there was a fellow who was spinning eight plates on eight very tall, thin dowels.

Simple time tracking that syncs with payroll.

I imagined him in his apartment practicing this act and it made me laugh.

But it also made me appreciate all the hard work it took him to acquire his insane plate-spinning skills.

The circus that’s basically your life

Running a business is a lot like this guy at my conference, spinning eight plates at once.

  • First, you spend time getting one plate to spin, carefully tending to it.
  • Then when it’s got momentum, you can tend to another plate.
  • When you have multiple plates spinning, you have to go back and forth between overseeing it all and doing the actual work of keeping them spinning.

It’s a precarious, exciting dance, and it’s the most satisfying thing in the world.

One major plate in this whole dance is your cash flow and making sure you always have enough money in the bank. In financial terms, this is called having positive cash flow, since you have more cash coming into your business than out.

From payroll to paying and sending out invoices, it can be a lot to keep track of.

In this article, I’m going to give you real-life advice on how to stay cash flow positive so you never have to worry about not having enough money on hand. I’ve broken the tips out into three levels: Tactical, practical, and strategic.

Let’s dig in.

Level 1: The tactical stuff

A lot of this level one stuff is about good invoicing practices so you can make it super easy for your customers to pay you on time. When your customers pay you quickly, it helps your business generate positive cash flow.

Set clear expectations with new clients

If you’re taking on a new client, you’re embarking on a new relationship. So proceed with care. Talk about the money stuff in the beginning, before you ever start any work. Make sure they understand:

  • How you bill
  • When you bill
  • When invoices are expected to be paid, and
  • How they can pay you

Yes, it’s not the most fun part of running a business, but it’s all about setting clear expectations. Why? So when you mention that you have to charge a 5% late fee on an invoice that’s past due, your client won’t be surprised and pissed off.

Use invoicing software

When you use invoicing software, it’s kind of like bowling with bumpers; you’re reducing the chances of majorly screwing something up. Plus everything stays neat and organized since it’s way easier to track all your invoices from a central location.

If you send out monthly invoices for recurring services, you can bypass invoicing all together and set your customer up on automatic payments like a subscription service. This saves you time and you’ll always know when and how much money is coming in. (I use MoonClerk because they’re cheap and easy to use.)

Make it easy for people to pay you

It’s always awkward when I want to buy something and the business selling the thing makes it hard for me to pay them.

I’m sure this has happened to you. You see something online that you’ve been searching for, like a cool, leather luggage tag. You want to give the maker your money, but for some reason their website sucks and you can’t pay right away or worse, they only accept checks. So you put off sending the check because do you even have a checkbook?

It’s your job to make it ridiculously easy for customers to pay you. If you accept several payment options like checks, Paypal, Zelle, and credit cards, make sure that it’s very clear.

Foolproof this.

If you’re sending invoices, make sure all the options are always listed on every invoice, every time.

Invoice best practices for small business - Tips to stay cash flow positive

Use auto reminders for late invoices

Auto reminders on past due invoices are so clutch. It saves you time and more importantly, it does the job of collections so you don’t have to feel weird about reminding your clients to pay up. If you charge a fee for late payments, before you charge the fee, remind clients about it through a follow-up email auto reminder.

Like this:

Invoice follow up email - Tips to stay cash flow positive

Set up a separate email for invoicing

The benefits of setting up an email strictly for invoicing and accounting are twofold. It can help you stay organized and it also has a weird psychological impact on your customers.

Something like accounting@yourdomain.com will do just fine.

When you set up your invoicing software, you can send all your invoices and keep all money correspondences going to and from that email.

Separating this piece helps you stay focused. The money stuff isn’t distracting you in your regular inbox and your regular work isn’t distracting you when you’re dealing with the money things, like during your weekly finance time.

There’s also this weird psychological thing that happens when you separate the accounting. For whatever reason, people tend to take you more seriously. You look like you have a whole accounting department or a person specifically handling all your invoices, and something shifts in people’s mind. What I’ve noticed with my informal research is that customers will usually pay you faster.

Level 2: The practical stuff

Does this sound familiar? You have cash that’s owed to you, the money is not in your account just yet, but you need that money to pay for outstanding obligations. That, my friends, is called a cash flow timing problem.

Here’s an example. You just got paid by a customer, but it’ll be a couple of days before the actual cash hits your bank account. And the problem is, you need to run payroll today.

Here are some ways to deal with these types of cash flow timing issues:

Request a deposit before you start working with a client

This serves multiple purposes.

  • It gives you immediate access to cash. For larger, long-term projects, having an influx of cash before you start work is helpful especially if you have upfront project costs. With big projects, more often than not, you will. You might have employees and contractors to help you execute the job or deposits that you need to put down.
  • It helps clients pay you quicker. For small businesses, it’s usually easier to pay more frequent, but smaller invoices than it is to pay one huge, lump sum. And for big corporations that take a long time to pay you, getting a deposit upfront helps prevent cash flow timing issues that are inherent with that type of client.
  • It helps you be sure your client is serious. Requesting a deposit can help you weed out which clients are serious and which ones aren’t. Someone who is willing to pay you upfront is invested in your business and trusts you. And it helps you hedge your risk of being stiffed with a very large bill that never gets paid.

Try to make friends with someone in accounts payable

This is especially helpful if you’re working with larger companies that take ages to pay. Get friendly with the person who is in charge of writing checks. Figure out if there is anything you can do on your end to make their job of paying you any easier.

Build up a business emergency savings fund

Building up a business savings cushion can help you feel a little more in control if something—or lots of things—don’t go as planned. Your cheap supplier could close their business down, a contractor could increase their prices, or you might need to take a bunch of time off for an unexpected reason—anything can happen.

In business, it’s the wild, Wild West, which can be exciting, but also risky.

A good rule of thumb for savings is 3 to 6 months of your monthly expenses.

Remember though, there are other factors that could impact how much cash you want to keep on hand. Factors like:

  • The type of business you’re running
  • What amount of cash you’re comfortable having, but not investing in your business, and
  • How quickly it takes your business to get cash

Different businesses are growing at different stages. Where you’re at will dictate how much cash you should have available.

For example, a food truck with a low monthly overhead will likely keep less cash on hand than a nail salon that’s gearing up to open a second location. The food truck can only have so many supplies on hand, especially since they’re perishable and it’s likely to have fewer employees, which means, the company is on the hook for less when it comes to salaries.

With an expanding nail salon, new location costs, like a buildout or unexpected repairs can be pretty expensive; not to mention marketing the new spot and staffing it.

Prepare for cash flow timing issues with a line of credit

A line of credit, or credit line, is a lot like a credit card. It’s credit that’s available to your business when you need it. The difference is, when you want to use the line of credit, you borrow cash from it and the cash gets deposited into your business account.

However with a business credit card, you use the actual credit card to buy things—not with cash from your bank account.

A line of credit is great if you have cash flow timing issues. Borrowing the cash from a line of credit will allow you to meet your short-term obligations. And when the income finally hits your account, you can pay back what you owe. 

With traditional banks, it could take a couple of months to get approved for a line of credit, so do some research and prepare in advance.

Disclaimer: Borrowing can be a slippery slope, especially if the underlying reason why you need to borrow is that your business isn’t making enough money to meet its needs. So that’s why the strategies in level 3 below are particularly important. ?

Level 3: The strategic stuff

If you’re doing everything from levels 1 and level 2, staying cash flow positive should be easy. If it isn’t, maybe there’s a bigger issue at hand. And you probably can’t address it by only dealing with the symptoms.

Here’s how you can take a step back to see the bigger picture of what’s going on with your cash flow.

Know your numbers: Costs and revenue

If you’re constantly running your business at a loss or by a thin margin, you need to pinpoint why. It could be that your costs are exceeding revenue. A simple (but not easy) fix is to decrease your costs.

Review all your monthly expenses. Are there things you can cut like applications you aren’t using but still paying for? Can you find ways to reduce expenses so there’s more cash in the bank each month? If you can’t, look at the other side of the same coin—increasing revenue.

Increasing your revenue can happen in a number of ways.

  • You can consider simply raising your prices with current and/or new customers. The risk here is losing current customers who are sensitive to price. (Read up on how to price your products and services.)
  • You can expand your customer base. By having more customers, you can increase income, but there will likely be costs associated with getting new customers, so it’s important to understand the economics.
  • You can find other ways to serve your current customers through new products or services. This will certainly require time to research, test, and launch something new.

Evaluate your offerings

Make sure you really understand how money flows into your business.

  • What are all the ways your business makes money?
  • What are the products or services that bring in the most money?
  • Are there services or products you offer that are not making a lot of money (or maybe even costing you money)?
  • Does it make more sense to focus on the money makers and kill the loss leaders?

Here’s a chart that shows you one way to analyze different aspects of your business.

What makes you money in your business - Tips to stay cash flow positive

The y-axis is a spectrum to measure the things you do in your business that your customers find valuable and not valuable. The x-axis is a spectrum to measure the things in your business that make money vs. doesn’t make you any money.

Make your own version of this chart to see which products and services you should lean into—and which ones you should stop spending time on.

Stay focused on who you serve

Always stay focused on the customers and clients you serve. Your relationships with them are vital. They have to trust that you have their best interests at heart and that you’re committed to serving them. 

Having conversations with your customers, in real life and online, helps build that trust. When you can speak to their issues using language that resonates with them, they’ll start to trust that you know how to help solve their problems. You’ll get feedback about what you’re doing well, where you’re falling down on the job, and what you can do to serve them better.

That’s the only way you’ll stay cash flow positive—and keep those plates magically spinning in the air.

Updated: August 9, 2019

Paco de Leon
Paco de Leon Paco is a musician who happens to be killer at finance. She's the founder of The Hell Yeah Group, a financial firm focused on inspiring creatives to be engaged with their personal and business finances. Paco lives in Echo Park, Los Angeles with her wife Jenn. She plays in a band called Mister Fantasy, runs a boutique bookkeeping agency called Hell Yeah, Bookkeeping and is a co-founder of the arts-based non profit organization, Allies in Arts.

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