Profitable small businesses can quickly implode without diligent money management.
But maintaining a healthy cash flow shouldn’t require an accounting degree.
The following eight money management fundamentals can help you balance your cash flow for the long-term.
1️⃣ Discover Your Runway Length
Many skip determining their runway length - the number of months your business could cover its costs for if revenue unexpectedly cratered to nil today.
Regularly determine your runway, aiming to incrementally expand it over time and cushion against disruption from:
✔️ Losing anchor clients
✔️ Supply chain shocks halting operations
✔️ Natural disasters
✔️ Key person illness
So probe and grow runway religiously!
How much runway should you aim to have in the bank? 12-24 months is ideal.
2️⃣ Build a Resilient Cash Nest Egg
Ideal savings targets vary based on your business model, but a good guideline aims for somewhere between 12+ months of average operating expenses. This means if sales evaporated, you could float fixed costs to rebalance activities.
3️⃣ Bill Smarter, Not Harder
Slow sales cycles and invoicing can destroy a business, as short-term costs exceed short-term revenues. That six-figure check you’re expecting in 12 months is of little use when you have bills to pay today.
But you can get more cash on your books through smarter invoicing terms and collections.
Consider whether you:
✅ Highlight payment details explicitly?
✅ Offer digital settlement channels conveniently accessed 24/7?
✅ Emphasise payment deadline urgency unambiguously upfront?
✅ Follow up and confirm receipt?
✅ Incentivise early payment or penalise late payment?
Set yourself on course to not just survive but thrive, by clearly communicating and enforcing your payment standards.
4️⃣ Budget from Historical Data
Budgeting illuminates reality...which frequently diverges from our optimistic projections made for investors and our own sense of sanity.
Establish seasonal spending patterns by mapping several prior years’ worth of bank statements tracing previous periods' incomes and expenses across the calendar.
Revisit religiously quarterly, not just annually! The gap between projections and reality compounds over time when left unscrutinised.
5️⃣ Expense Equilibrium
⬆️ Upgrading payment processors scoring you better terms and volume discounts
⬇️ Renegotiating fixed costs like subscriptions when contracts are up for renewal
⬅️ Shifting recurring renewals from monthly to annually to benefit from discounted prepayment
➡️ Exploring more liquid capital alternatives to large asset investments that drain budgets
Getting creative with costs expands options beyond just revenue growth for freeing up precious working capital keeping ventures nimble amid whatever lies ahead in these peculiar economic times.
6️⃣ Partners Power Possibility
In unfamiliar waters filled with swirling storms, no boat braces turbulent forces alone.
Nor should your business overlook the power of partnering with complementary businesses.
Leveraging life jackets through choppy seas can take many forms:
🤝 Collaborators splitting costs on capital-intensive assets (e.g. a cafe sharing its lease with a clothing retailer)
🤝 Complementary referral partners (e.g. a private legal practice referring clients to a private accounting practice, and vice versa)
The path from scrappy startup to scaled-up stalwart is rarely travelled alone. Carefully plug persistent networking gaps with partners, multiplying your chance of not just surviving, but thriving through whatever emerges over the horizon.
7️⃣ Practice Permanent Payments
What if recurring revenue flowed forever without requiring perpetual client courtship campaigns?
Install seamless signup and billing processes, focus on selling monthly retainers over one-off fee-for-services, and then focus on delivering delightful experiences and earning word-of-mouth referrals.
The outcome? Built-in revenue acceleration without straining limited marketing bandwidth, meaning more moments making an impact instead of chasing viral vanity metrics.
Not only that, but should you ever want to sell your business, doing so is exponentially easier with recurring revenue in tow.
8️⃣ Automate Everything With Parpera!
Combat needless headaches by comprehensively automating workflows!
Parpera's mobile-first money management app wholly synthesises siloed processes into a single easy to use interface - transactions, accounting, cash flow analysis, tax and more.
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