Different ways founders can stay cash flow positive in a shaky economy

7 Ways Founders Can Stay Cash Flow Positive in a Shaky Economy

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Cash flow refers to how much money moves in and out of business. It’s typically measured by month, quarter, or year and can be a solid metric for assessing a company’s financial health. Being cash flow positive indicates that a business makes more money than it spends during a specific period.

As a founder, staying cash flow positive should always be the goal. It shows your company is earning more cash than it’s spending, making it simpler to manage costs, invest in future growth, and maintain financial stability.

However, recent reports show that American households are experiencing shrinking savings and rising debt levels. If the economy’s future remains uncertain, businesses will likely feel the effect and find it increasingly difficult to maintain a positive cash flow status.

Stay tuned to learn several tips for founders looking to stay cash flow positive in an unstable economic climate, including setting up automated invoice approval workflows, building up an emergency fund, and exploring financing options.

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7 Tips on Staying Cash Flow Positive

1. Collect and analyze data to steer revenue operations

Without collecting and analyzing data, it can be difficult for founders to understand their businesses’ financial health and make decisions that will help them stay afloat in a shaky economy.

Regarding cash flow, data refers to numerical information surrounding money flow in and out of business.

Data can include:

  • Accounts receivable
  • Accounts payable
  • Sales and revenue
  • Expenses
  • Inventory levels
  • Cash reserves
  • Customer retention

Analyzing such data can provide the necessary information and insights for revenue operations (RevOps). RevOps is a business approach that aims to optimize a company’s entire revenue process by aligning the sales, marketing, and customer success teams.

Having a RevOps team fueled by timely, accurate, and insightful data is like having a group of superheroes dedicated to ensuring your business consistently makes more money while spending less. Using special tools and skills to understand your business based on data, they can spot unique approaches to improving processes and growing revenue.

There are several steps to implementing revenue operations. in your business, including:

  • Assessing your current sales and identifying inefficiencies or gaps
  • Defining your revenue goals and what metrics to track
  • Creating a revenue operations team that includes members from all your silos
  • Choosing and implementing technology solutions
  • Establishing processes and workflows to ensure everyone is aligned and working towards the same goals
  • Monitoring and optimizing your revenue operations metrics, making adjustments as necessary

2. Identify short-term strategies to boost sales

Boosting sales can improve cash flow and make it easier to stay cash flow positive. But as any business owner knows, there are several approaches to increasing sales, and there’s never a guaranteed performance level.

However, there are a few tried and true methods that tend to perform better than others, including:

  • Limited-time promotions and discounts – A RetailMeNot study found that 80% of consumers are likelier to purchase if offered a deal.
  • Social media marketing – A Hootsuite report found users spend an average of 2 hours and 28 minutes on social media. Find the preferred platform of your target audience to pour your marketing efforts into.
  • Cross-selling techniques – Research shows cross-selling can increase revenue by up to 30%. Use data-driven AI to make suggestions based on what’s already in a customer’s cart at check-out.

3. Keep expenses below revenue

Keeping expenses below revenue is crucial for any business looking to ensure they are cash flow positive. However, if you’re spending more than you’re earning, you may have to rely on external financing, like loans or investments, to stay afloat. This offset can put you in a cycle of debt and potentially jeopardize your company’s future.

To keep expenses below revenue and maintain financial stability, consider any of the following tips:

  • Track all expenses to help identify areas where you can cut costs.
  • Prioritize essential business expenses.
  • Negotiate with vendors for better pricing and payment terms, or switch to lower-cost vendors.
  • Consider outsourcing specific tasks to contractors to save on employee-related fees.
  • Use budgeting tools to help manage your finances and keep costs in check.

4. Explore financing options

A company may need financing for various reasons, including expanding into new markets, launching new products, or investing in new technology. As a founder, you have several financing options to choose from.

  • Bank loans offer low-interest rates and structured repayment terms but can be challenging to secure for companies with little credit history.
  • Ventura Capital provides large sums of funding but can involve giving up equity in the company.
  • Angel investors are less formal than venture capital firms and can offer mentorship, but finding the right investor match can take time and effort.
  • Crowdfunding is ideal for generating relatively cheap pre-orders but requires a strong marketing campaign.
  • Grants don’t require repayment but can have strict eligibility requirements.
  • Revenue-based financing offers a more flexible repayment model than loans but can have higher interest rates.

When borrowing, it’s essential to consider several factors to maintain cash flow positivity, including:

  • Interest rates
  • Repayment terms
  • Fees
  • Loan amount
  • Purpose of the loan

Taking time to explore your options and their terms can help you make an informed decision that best fits your business’s needs and minimizes financial risk.

5. Build an emergency fund

Having an emergency fund for your business can mean the difference between survival and bankruptcy. A report by JPMorgan Chase found only half of small businesses have enough cash on hand to cover their expenses for just 27 days.

Making an emergency fund a priority today can help you safeguard your business against unexpected expenses tomorrow. An emergency fund can also save you in a sudden downturn in revenue.

Here are some tips for building an emergency fund for your business:

  • Set a goal by determining how much money you need to operate your business for three to six months.
  • Review business expenses, reduce unnecessary spending, and redirect those funds toward the emergency fund.
  • Set up a separate account for your emergency fund to prevent any mix-ups.
  • Set up automatic contributions for consistent savings.
  • When revenue is more than predicted, transfer additional cash to your emergency fund.
  • Regularly re-evaluate and adjust your emergency fund needs, goals, and contributions.

6. Set up automated invoice approval workflows

Missed payments can hurt your business’s cash flow in several ways. To start, missed payments often lead to late fees and interest charges, which can eat into your cash flow. Missing payments can also negatively impact credit scores and make it harder and more expensive to secure financing in the future.

Consistently missing payments can also strain your relationships with vendors and result in the inability to take advantage of early or on-time payment discounts or, in some cases, contract termination.

An automated invoice approval workflow streamlines the approval and payment of invoices. The digital process involves software to automate the entire approval process, from submission to payment.

Automated invoice approval workflows help with the following:

  • Increased efficiency as they eliminate the need for manual data entry
  • Improved accuracy with validations and checks
  • Reduced labor and material costs
  • Improved relationships with vendors
  • Better cash flow management

If late payments are cutting into your cash flow, automated invoice approval workflows can be the simple answer, thanks to user-friendly software options.

7. Freeze all non-essential spending

Non-essential spending can overuse valuable resources you could otherwise use for essential expenses. It’s not a tough habit to get into, but definitely can be a hard one to break.

Examples of essential expenditures for a business include:

  • Payroll
  • Rent or mortgage payments for property
  • Utilities and other services, including internet and phone
    Inventory
  • Marketing and advertising expenses
  • Insurance and legal fees
  • Equipment maintenance

A company that cuts these types of expenses may be cash flow positive but likely inefficient and out of business sooner than later. So instead, look to freeze, even if temporarily, non-essential spending until you’re cash flow positive or have an emergency fund stashed away.

Consider freezing your spending on:

  • Employee travel and expenses
  • Luxury office spaces
  • Hiring additional staff not critical to core business operations
  • Expensive equipment or technology upgrades that are more convenient than essential
  • Employee perks and benefits not necessary for business operations
  • Marketing campaigns with poor returns

If cutting employee perks or upper management’s luxury office spaces, remember to be open and honest about the necessity of cutting expenses, what the goals are, and whether or not the freeze is temporary or permanent.

3. Keep expenses below revenue

Keeping expenses below revenue is crucial for any business looking to ensure they are cash flow positive. However, if you’re spending more than you’re earning, you may have to rely on external financing, like loans or investments, to stay afloat. This offset can put you in a cycle of debt and potentially jeopardize your company’s future.

To keep expenses below revenue and maintain financial stability, consider any of the following tips:

  • Track all expenses to help identify areas where you can cut costs.
  • Prioritize essential business expenses.
  • Negotiate with vendors for better pricing and payment terms, or switch to lower-cost vendors.
  • Consider outsourcing specific tasks to contractors to save on employee-related fees.
  • Use budgeting tools to help manage your finances and keep costs in check.

Prioritizing Cash Flow Management in Uncertain Times

Staying cash flow positive is crucial for any business looking to maintain financial stability and invest in growth opportunities. There are several approaches a founder can take to protect a positive cash flow status, including setting up automated workflows, building up emergency funds, and exploring financing options.

In an unstable economy, it’s more important than ever for businesses to prioritize cash flow management. Remember, cash is king! If you want help creating a comprehensive business plan to stay cash flow positive, contact us today and let our team of experts guide you.

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