Subscribe to Entrepreneur for $5
Subscribe

3 Cash-Management Strategies for Improving Cash Flow Issues and Optimizing Efficiency

Maintaining positive cash flow is key to stability, growth and building confidence in your business.

By
Opinions expressed by Entrepreneur contributors are their own.

Your company’s cash flow has the potential to shape its future, both in the short term and well down the road. 

That said, how you manage that cash flow can play an outsized role in your future, contributing to the growth, stagnation or even the decline of your business. 

In other words, your approach to cash management can ultimately determine the fate of your business. And though rarely recognized, your cash management approach has the potential to matter just as much or even more than the actual merit of products and services.

Fail to manage your cash properly, and you won't have an opportunity to build your business as envisioned. Strategically manage your company's cash, and the stage will be set for your vision to come to life, particularly as a brand that’s both profitable and has the resiliency to stand the test of time.

The challenge lies in seizing control over cash flow. However, you can overcome this obstacle through proper cash-management practices. 

Seize the opportunity to proactively manage the cash moving into and out of your company, and you will be able to cover expenses, pay debts and provide investors with income. Proper cash management also allows for continued reinvestment in operations, which, in turn, helps your business scale as quickly as possible.

The bottom line is this: Cash flow is intimately linked to business operation. If your business has negative cash flow, it is time to right the ship by removing this critical obstacle to continued growth. 

Here’s how to do it:

Related: How to Better Manage Your Cash Flow

1. Use data to make intelligent cash management decisions

Although no one has a crystal ball or crystal-clear vision of what lies ahead, everyone can more or less access market research containing insightful, data-intensive business forecasts. Carefully analyzing these forecasts can provide the information necessary to shape your business spending while maintaining critical restraint. In particular, it helps to take a close look at reports pertaining to your specific industry and niche.

When reviewing forecasts and reports, zero in on key performance indicators (KPIs). KPIs provide objective data that helps your business navigate cash management hurdles rather than relying on your own subjective viewpoint or gut instinct when making important decisions. 

Analyze brand awareness metrics to get a sense of whether your target demographic is aware of your value-add. If brand awareness is lacking, stagnating, or even decreasing, it is in your interest to launch a strategic inbound marketing campaign, ideally highlighted and continually promoted by social media.

Customer acquisition costs, commonly referred to as CAC, are particularly important in the context of cash management. The CAC metric helps gauge whether marketing and sales efforts are providing the desired bang for their buck. 

Another metric, commonly referred to as CSAT (customer satisfaction), can also shed light on whether your current customers are satisfied or disappointed with your services.

Related: 5 Hard-Earned Cash Management Lessons for Entrepreneurs

2. Streamline your operations with the right technology

Businesses in their infancy often struggle with significant levels of debt. Launching a business requires a delicate balance, as debt obligations must be fulfilled even when sales aren’t meeting expectations. The money spent on overhead eats into profit margins, often to the point that many businesses remain in the red for the foreseeable future. Think twice before cutting costs.

The best approach is to implement technological solutions that streamline your operations without whittling away at the funds dedicated to overhead costs. For example, using specialized tech to perform certain administrative functions (those that are repetitive and can be placed on autopilot) can save a considerable amount of money. 

Software that helps manage inventory can also help reduce inventory and production costs even more. Streamline your operations with financially prudent solutions and your team, as well as your overhead budget, can go even further, allowing you to tackle challenges that help your business scale that much faster.

Related: 5 Cash Management Tactics Small Businesses Use to Become Bigger Businesses

3. Understand that cash is necessary to add to the bottom line

It is often said that it takes money to make money. In the context of business, this means most companies require a meaningful amount of capital to keep things moving — and to maintain a competitive, profitable enterprise down the road. 

If your customers are not fulfilling their financial obligations, request that they pay sooner rather than later. This doesn't mean you have to redirect unpaid invoices to collections.

Instead, it is in your interest to reach out to customers to remind them when payments are due and possibly even provide a discount for early payments. Accounts receivable solutions available in the cloud that transmit automated messages reminding clients about payments due can also help maximize your revenue.

If your customer outreach effort doesn’t result in the expected revenue, consider altering payment terms. Require customers to pay at least part of the total when your product or service is rendered. Consider pivoting to a retainer-oriented model, where you provide services for specific, pre-set payments every month. Alternatively, it might even make financial sense to shift to a prepayment system where customers pay early or well ahead of the payment due date.

Convert your cash management weakness into a strength

Make these hard decisions to generate positive cash flow, and you will have the money necessary to execute your strategic business vision, continue healthy operations and serve customers without interruption. 

Don’t assume you need years of experience working as a market analyst to make profitable business decisions. By honing in on your business’s cash management inefficiencies and making the necessary changes at just the right time, it won't take long to prime the cash pump needed to propel your business to its full potential.

Jimmy Lee

Written By

Entrepreneur Leadership Network Contributor

Jimmy Lee is a Vietnamese-born entrepreneur and founder of DNBC Financial Group. Lee built DNBC to overhaul the international remittance process found in traditional banking systems and remove the costly money-transfer procedures that limit business growth and expansion around the world.