Operational cash flow is what your business has and uses to represent its value. It is based on the everyday activities of a business: buying and selling. It can be used to offset risks and navigate debt.

“Cash flow is the basis for all financial success and challenges,” says VtSBDC advisor, Steve Densham. Learning how to manipulate the way cash flows in and out of your business is a relevant lesson for every type of business, from the neighborhood lemonade stand to a Fortune 500 company. 

Here are some ways to boost operating cash flow, according to Steve: 

1. STAY UP TO DATE with each of your different cash flows…use a financial tracking system like QuickBooks to help monitor your business’ money streams from operations to finances to investments
2. CREATE different payment strategies…think of ways to collect quicker and pay slower
3. SHIFT as many costs to a fixed model…look to stabilize cash inflows and outflows
4. GENERATE a 13-week cash flow projection and update it weekly…know the importance of “timely” cash flow management
5. ANALYZE your investments, expenses and areas of “waste”…assess whether there are “leaks”
6. MEASURE your “KPI’s” [Key Performance Indicators] and know how they contribute to cash flow efficiency…determine how to turn delayed payment “lumps” in A/R to fixed payments, or more predictable and stable streams
7. STUDY your “cash conversion cycle”…know how many days are needed to make a “sale” and to collect (days needed to pay vendor)
8. INCENTIVIZE customers to make payments upfront… and then, plan around fixed annual or scheduled payments
9. KNOW your A/P vs. A/R…how many days are needed for A/R stays below A/P?…tighten the terms for A/R with vendors to ensure you collect enough to pay
10. PAY ATTENTION to “big ticket” expenses (payroll is usually a big one)… consider going from a 15th/30th schedule to a “bi-weekly” one
11. AVOID having your customers run their business on your money…establish CLEAR invoicing and payment expectations!
12. EVALUATE your marketing budget…it should be the last cut you make
13. BUILD IN a “buffer/fire-wall” when projecting key metrics…project conservatively and act strategically!
14. LEVERAGE technology and opportunity…increase efficiencies and improve cash flow
15.  

Advisor, Steve, reminds business that operational cash flow, if managed closely, can help you grow your business, use debt to your advantage, and stay afloat when business slows. He says: 

Managing cash flow is both a science and an art. For business owners, it is the “Holy Grail” of long-term thriving success. On a daily basis, a fluid, healthy cash flow should be the priority! Of course, debt reduction is important, however creative cash generation is equally, if not more, important. Be very aware not to let your obsession with debt repayment destroy your creativity and passion for growing your business and creating more cash. EVERY DAY, start your day with a driving commitment for contributing more, leveraging more and creating cash in your business.

Which tips are you already practicing in your business, and which will you start?

Looking for more? Check out our resources page or reach out to your regional advisor!

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