Maintaining a Positive Cash Flow and Why Is That Important For Your Business

by Emma L. Business consultant

One of the most common mistakes business owners make is placing cash flow behind other business-related goals. As important as building and maintaining a brand and generating leads are, cultivating a steady flow of cash going in and out of your accounts is what will allow you to improve your business. You have cash coming in from clients and customers who are purchasing your products and services, with some of the flow coming in the form of accounts receivable collections and you have cash flowing out as expenses, such as rent, mortgage, loan payments, and taxes. But what is a positive cash flow and how does it help you grow and maintain your business?

Why is cash flow so important?

Cash flow represents the very core of a successful business. Considering that most of the cash comes directly from selling business assets, products and services and receivable payments, maintaining a positive cash flow allows you to set aside a piece of the monthly revenues and use them to further improve your business, purchase additional service and product lines, rope in new suppliers or expand your team of employees if necessary. Without it, you would have to rely on bank and credit card loans and waste money covering numerous fees.

Positive cash flow

Positive cash flow is used to describe a situation where the flow of cash coming into your business is greater than the flow of cash going out. If your expenses are larger than what you’re generating at the moment, you’re experiencing a negative cash flow and risk becoming overdrawn, having to find more money just to cover the overdraft. This is the main reason why new startups require working capital, such as a line of credit or a loan in order to cover any cash flow shortages. But with a positive cash flow, you can be sure all your payments to various creditors are on time, which also has quite a positive effect on your overall credit rating.

Maintaining positive cash flow

As promising as offering a discount might be, the general rule of thumb is to avoid them as much as possible. It is an excellent technique to attract new customers and solidify your connection with the existing ones, but selling products and services for less than what they’re worth will hardly help you generate a positive flow of cash. Knowing the exact costs of manufacturing, assembling and shipping of the products and services you’re offering will help you determine the ideal price acceptable both for your revenue generating efforts and your customers purchasing abilities.

Automate your payments

Consistency is one of the most common issues business owners face when growing their company and it is often reflected in the way they handle their payments, especially when it comes to recurring purchases from loyal customers. Dealing with this issue is as simple as finding a good platform to handle each and every recurring payment and avoid experiencing late or missing payments coming in and out of the company. You can hire a dedicated in-house team to handle the payment system, but startups are usually strapped for cash in their early days and relying on a collection platform to accept and manage payments is a far more reasonable idea.

Encourage recurring customers

Repeat shoppers are considered to be the holy grail when it comes to securing a positive cash flow, but payment automation is just one of the things you can do to secure them. Provide them with loyalty programs and VIP product and service offerings and don’t be afraid to throw the word “free” into the mix. Customers love freebies and funding one can be financially sound as long as you target the right repeat shoppers and devote the effort toward keeping their shopping experience better than ever.

You can also bundle products, create back-end versions or simply pre-sell them, just make sure that the associated expenses don’t turn out to be larger than the actual returns. While it may be tempting to invest all your time and effort into growing and developing your brand from the very beginning, ensuring that you have a positive cash flow not only important, but a key precursor needed for that growth and development.