Getting your short-term cash flow in order is crucial to the longevity of any retail business. In its simplest form, cash flow is the balance between money coming into your business (cups of lemonade sold) and running it (cost of ingredients, wages, advertising, etc).
Projecting several months out allows you to keep expenses in check and seek funding if needed. This will help you get paid early and avoid costly fees like overdraft charges.
Increased Cash Flow
Cash flow is one of the most important aspects of running a business. It measures the amount of money coming into your company in profits and going out in expenses and debt. By keeping on top of your business’s cash flow, you can ensure that the money going out is not exceeding the money coming in and avoid problems like running out of cash.
One way to improve your cash flow is to reduce unnecessary expenses. This can include unused office space, overpriced meeting food, or costly employee phone plans. Decreasing these costs frees up more cash to invest in your business.
Another important aspect of cash flow is to understand the revenue cycles of your customers and suppliers. This will help you plan when your company’s sales may increase or decrease. It will also help you know when to anticipate large expenses, such as product inventory replenishment or a new marketing campaign.
A good practice is to create a weekly rolling cash forecast for your business. This can be done with a simple spreadsheet program and should include all estimated inflows, client payments, and outflows, such as payroll and vendor bills. This will give you a clear picture of your current cash situation and provide a strong foundation for planning.
The time between earning and receiving a paycheck can be stressful for workers who depend on wages. It can be hard to get by without a quick cash infusion when bills or emergencies come up. This is where early wage access programs can help.
These programs allow employees to get paid early by accessing a portion of their paychecks up to two days before payday. This will enable them to take care of urgent expenses and avoid high-cost alternatives like payday loans, credit cards or steep bank overdraft fees. Controlling when and how you spend can greatly reduce stress and improve financial health, whether for a small business or as a side hustle.
As a small-business owner, keeping your cash flow in check means you can cover payroll, buy equipment or supplies and pay other essential costs. A steady inflow of money will allow you to complete projects in shorter periods and lower your overall operating costs.
Getting paid earlier means you’ll have the funds you need to make payments on time, which is good for your reputation and helps maintain your relationship with vendors. It’s also a way to build a cash reserve for unexpected expenses. You can use your extra cash for other goals, such as saving for retirement or a home down payment, or reinvest it in the business to grow.
Time to Plan for the Future
Getting paid early gives you more time to budget and plan. It may take more effort to track your spending and income, but achieving long-term goals like saving for a downpayment or reducing debt is well worth it. Using this newfound cash flow as an investment in your business or side hustle can also help you grow and become more profitable.
The bottom line is that if more money goes out than coming in, profitable businesses can fail due to poor cash flow. That’s why it is essential to have a strong understanding of cash flow and how it impacts your short-term financial performance.
Start by creating a realistic cash flow forecast and updating it weekly (at minimum). This helps you identify potential cash flow shortfalls and take steps to avoid them. This might include reviewing sales cycles, stock turnover and credit terms with customers and suppliers.
It also involves negotiating compensation with your employer (salary, equity or benefits) to get the best deal possible, as this will improve your monthly cash flow. Investing in resources like high-performing employees or equipment that will streamline operations will also increase your profitability and reduce your time on manual processes.
In the gig economy, getting paid early is a way to make extra money from side projects or to invest in new skills that can pay off down the road. The additional cash can be put towards savings for a downpayment on a house, retirement investments, or even paying off student loans. These savings can be reinvested into your business or used to help you achieve your goals outside of work.
Financial stress is a real issue for employees, especially those working in the gig economy, where it can be difficult to get consistent work. Employees who struggle financially may be more likely to take another job or work fewer hours, affecting their availability and productivity. Providing on-demand access to wages can alleviate this pressure, improving performance and retention rates.
One of the most effective ways to improve cash flow is to start a rolling cash forecast. This will give you an idea of what cash inflows are coming in and when which can be useful for planning staff and ensuring funds are available to meet payroll and vendor payments. It’s also important to consider how a crisis, like the COVID-19 pandemic, would affect your cash flow projections and have a process for revising them as needed.