To help you effectively manage cash flow in your entrepreneurial endeavors, we’ve gathered twenty insightful tips from CEOs and Founders. From leveraging drop-shipping and inventory planning to accelerating cash receipt with electronic methods, these practical techniques will guide you in maintaining healthy financial liquidity.
- Leverage Drop-Shipping and Inventory Planning
- Offer Annual Billing Option in SaaS Business
- Adhere to a Solid Budget
- Prioritize Cash Inflow and Outflow Prediction
- Refrain from Unnecessary Expenditures
- Use AI for Financial Task Organization
- Implement a Cash-Flow Forecasting System
- Combine Diligent Forecasting with Contingency Fund
- Extend Client Payment Terms for Revenue Buffer
- Establish a Cash Reserve for Unexpected Expenses
- Use a 13-Week Cash Flow Forecast
- Implement Rigorous Invoicing and Payment System
- Maintain Low “Days of Sales Outstanding”
- Adopt a Six-Month Cash-Flow Forecast
- Apply Zero-Based Budgeting Approach
- Know Your Numbers and Track Cash Flows
- Conduct Credit Checks on Non-Cash Customers
- Invest Within Potential Loss Capacity
- Maintain an Updated Cash-Flow Forecast Spreadsheet
- Accelerate Cash Receipt with Electronic Methods
Leverage Drop-Shipping and Inventory Planning
Don’t pay until you get paid. As an entrepreneur looking to start an e-commerce business, find ways to drop-ship at first. You don’t need tens of thousands of dollars to start a company. There are many U.S.-based manufacturers that will store and ship your product. What’s great about this is that you don’t have to pay for your inventory until the buyer pays you! This strategy is very effective at managing cash flow.
Many companies will quickly outgrow this and decide to order overseas when volume warrants to cut costs. When you outgrow the drop-ship method, it’s so important to have proper inventory planning and forecasting skills. If not, it will drain your cash flow.
Look what happened to businesses during COVID. Most companies over-ordered inventory, ended up sitting on it, and having to discount it at a loss. This could have all been prevented with proper inventory management systems in place. Ordering too much inventory and sitting on it will drain your cash flow.
Josh Maine
CEO, Eli & Elm
Offer Annual Billing Option in SaaS Business
For SaaS businesses with a recurring subscription revenue model, one of the best ways to manage cash flow is by offering customers an annual billing option instead of solely focusing on a monthly subscription model. Then, incentivize customers to sign up for the annual plan by offering a slight discount. By doing this, you could significantly increase up-front revenue without any changes to marketing, sales, or cutting expenses.
This is an effective way to raise cash quickly without incurring more debt or raising additional investment. Additionally, annual billing plans will reduce churn related to payment failures on monthly subscription renewals, allowing you to retain even more cash.
Ben Bozzay
Founder, Tech Lockdown
Adhere to a Solid Budget
Managing cash flow has been a critical component of our success in my entrepreneurial career at Diabetic Insurance Solutions. Setting up a solid budget and sticking to it regularly is one practical technique that has proven beneficial.
We meticulously manage our income and expenses to ensure that we allocate finances for necessary needs while leaving room for unanticipated obstacles. This discipline has enabled us to retain solid financial liquidity, guaranteeing that we can continue to provide life insurance to diabetics without interruption.
Hassan Sanders
CEO, Diabetic Insurance Solutions
Prioritize Cash Inflow and Outflow Prediction
I am the primary point of responsibility for our cash flow management. I even went as far as writing a bespoke cash-flow management software, as pre-fabbed packages were not doing it for me. From that angle, I can say:
Prediction is everything. If your only concern is making sure cash outflow is not overtaking cash inflow, you’re missing out on the core reason for cash-flow management. The key is to be able to predict cash inflow as much as possible, so that you can pinpoint a targeted expense number that is not too high or low. You want to spend money now if you can, as that presumably helps the business.
Prediction is the major challenge. It is not difficult to get the number to match up nicely; it is not generally difficult to cut expenses. The key is to know what your inflow will be for a quarter or month. That takes some skill.
Not everyone can write a bespoke system, but your software should have some way to customize your cash flow.
Christopher Falvey
Co-Founder, Unique NOLA Tours
Refrain from Unnecessary Expenditures
Effectively managing cash flow in my cleaning service business involves a practical tip: refraining from…
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