American Express created the OPEN Book with tons of tips on how to grow a small business. Paging through the OPEN Book, one article jumped out: Go With the Flow. The brief article was written by Raymond Joabar, Senior VP and GM of Lending and Network Development, and he gives “5 golden rules in order to make cash flow work for you instead of against you.” We’ve summarized the rules below for the factoring blog‘s readers:
1. Know how to measure it. Joabar suggests monitoring your cash flow by reviewing balance sheets and cash flow statements, as well as the number of days it takes to turn inventory, and how long it takes for cash to cycle through the business.
2. Know the causes of cash flow problems. When businesses hit a growth spurt, that means more cash is needed to invest in additional inventory and infrastructure. On the other end, if your customers aren’t paying you quick enough, it can also lead to cash flow problems. Finally, slow sales lead to poor cash flow. Joabar says it’s important for busienss owners to understand the fundemental causes of cash flow to help avoid problems before they begin.
3. Build strategies that can maximize cash flow. Joabar strongly urges business owners to “get serious about minimizing fixed expenses” and “find creative ways to handle peaks in demand without hiring additional staff.” He says to think about using credit cards rewards programs and frequent flier point as cash substitutes when making purchases. In addition, it’s important for you to set clear payment terms and expectations with your clients.
4. Prepare for the Worst. Simply put, Joabar advises for business owners to get a “jump on the cash flow problem by lining up several sources of financing in advance.” Accounts receivable factoring is a great way to manage your cash flow during times of rapid growth.
5. Grow Smart. “Consistent growth is the best way to smooth out bumps in cash flow,” according to Joabar. “When opportunities for growth present themselves, plan carefully.” Every investment, including custoemrs, should have clear returns.