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How to Stay Cash Flow Positive All Year Round

June 13, 2018

Cash is gasoline for your business – it’s the lubricant that keeps all the parts working.

Without it, any business is dead in the water. But far too often, businesses focus on profitability versus cash flow. This can be quite problematic, so it’s essential to have a firm grasp of your business’s cash flow.

How to calculate cash flow

To calculate your cash flow, add up all the cash that came into your business during a period of time, or cash inflows. Now subtract all the cash that left your business over the same period, called cash outflows. The result is what we call your net cash flow (which you can manage with a downloadable cash flow forecast template).

If this number is positive, then you are gaining cash (your revenues exceeded your expenses). If the number is negative, then the opposite is true.

TIP: Sometimes money gets tight - learn how to cover payroll for companies with a negative cash flow.

Staying cash flow positive – what’s the big deal?

While net cash flow is important to keep an eye on, a negative net cash flow does not mean that the lights in the factory are getting turned off – net cash flow merely indicates whether your cash balance is growing or shrinking.

A positive net cash flow (more inflow than outflow) means your cash balance is growing; a negative net cash flow means it’s shrinking. Here’s where the rubber meets the road, because if that cash balance reaches zero, your company has failed.

So, let’s focus on keeping that net cash flow positive. Sure, the occasional negative month won’t cause you to close up shop, but it’s not really helping you either. If you make net cash flow a priority and track it as a financial key performance indicator, you just might save yourself from a surprise call from your CPA at the end of the year.

How to stay cash flow positive all year round:

1. Consider including recurring billing

As you focus on creating ways to bring more cash into your business, one of the easiest strategies to implement is to add a recurring billing offer into your business model. Before you say, “But that’s not our business model!” try to think outside the box and find a creative way to service customers on a recurring schedule that will (1) add massive value to your customers and (2) give you a consistent revenue stream.

Here’s some inspiration:

  • Dollar Shave Club turned the razor industry on its head when it released a subscription model that delivers shaving razors to your mailbox at a lower cost than the big brands.
  • Petco offers a dogfood subscription business to deliver dogfood on a consistent schedule.
  • CPA firms offer “tax prep consultations” to help businesses budget throughout the year.

A good recurring billing offer has the added benefit of making your customers rely on you more, lowering your attrition rate and improving the overall health of your business.

2. Move that stale inventory

Establish a system for analyzing your inventory and make sure that you don’t have money tied up, drying out on the shelves. Perform analysis around inventory turnover ratios to ensure that you are converting cash to inventory – and then back to cash – in a timely manner. Sometimes taking a loss in some areas is the best business decision you can make.

3. Learn where your sales pipeline breaks down

Giving attention to your sales pipeline data can have a huge impact on your cash flow. Your pipeline transitions your customers along the sales cycle, moving them from prospects, to leads, to receiving a proposal, to customers.

Run some analysis on your pipeline data (your pipeline might have a dashboard already) to determine where your pipeline is breaking down. Repairing these sections of your pipeline will have a dramatic impact on your ability to acquire new business.

For example, let’s imagine your pipeline was exactly what I described above, and you produced the following data for the previous month:

  Prospects Sales Calls Proposals Sales Closed
# to reach each stage 100 75 20 15
% to move on   75.00% 26.67% 75.00%


By looking at the number of prospects to move through to the next stage in your pipeline and then converting this to a percentage, it becomes clear where repairs are needed.

In this example, the pipeline is breaking down in moving sales calls to the proposal stage, as only 26.7% are moving along, where the other stages in the pipeline flow at a 75% conversion rate.

Giving attention to the sales call procedure is a no-brainer – once the pipeline is improved it will result in more closed sales, which in turn improves cash flow.

4. Streamline your A/R and A/P

Accounts receivable (A/R) are those dollars that you have invoiced but not yet received. Accounts payable (A/P) are those invoices that you have not yet paid. One commonly overlooked way to improve cash flow is to address these two sections of your business.

A/R is a cash inflow to you, so you should work to shorten the amount of time that you wait to receive funds. Easy fixes are:

  1. Give your customers the ability to sign up for recurring billing – yes, it’s that important!
  2. Give discounts for customers that pay early (ever heard of 2/10 net 30?)
  3. Tighten your procedure on extending credit (don’t just give credit to every customer – make sure they deserve it!)

Conversely, take a look at your A/P. This is a cash outflow for you, so you should work to lengthen the amount of time that you wait to pay your bills:

  1. Negotiate longer payment due dates with your suppliers (a simple phone call can often solve this one…)
  2. Wait for a phone call (perhaps wading into an ethical gray area, but by waiting for your supplier to ask when you plan on paying, you can buy weeks for your cash flow – use sparingly!)

Hopefully, these tips help spark a better cash flow situation for your business. If you have any doubt in the future, just remember to increase the speed and amount of money coming into your business or decrease the speed and amount of money leaving your business. Follow this golden cash flow rule, and you’ll find your cash balance growing in no time.

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How to Stay Cash Flow Positive All Year Round Ensuring that your business is cash flow positive can be difficult. Use these tips to help improve your cash flow situation.
Nell Gable Nell Gable is the Content Marketing Manager at PaySimple, a cloud-based payment gateway software that helps over 17,000 business across the U.S. accept online payments.

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