If it is beginning to feel like every dollar you earn is being invested back in to nothing other than keeping your business afloat—then it is time to learn a few ways you can turn your profit into cash. This cash can then be invested towards a new area of your business, or saved for an upcoming project. The 5 tips below will help you to determine your profit, manage your spending, and bring more money to the bottom line.
1. Identify Where Your Money Is Coming From, As Well As Where It Is Going
You must first begin by creating a system for tracking all accounts payables, and account receivables. The most effective way of doing this, is to utilize accounting software—that both you and your bookkeeper have access to. This way you will understand the difference between what is in your bank account, and what monies are already accounted for. This same software can also be used for invoicing, so that you can quickly and easily identify outstanding invoices.
2. Cash Is King
At any given period you may experience a cash increase or decrease in your business. The key thing to turning your profit into Cash immediately when you make that Sale is what you do with that Cash. Don’t fall into the trap by using that cash just for expenses, instead look at different angles and how to use it strategically for a great purpose—for example: GST/Taxes, bills, capital purchases and so on and so forth. Set up a cash reserve or savings account for such purposes and start allocating that revenue using an appropriate and achievable percentage. Remove temptation and discipline yourself for greater results.
3. Identify Areas Of Opportunity
Your accounting software will create a multitude of profit and loss statements and reports, which you can use to identify areas of opportunity. By analyzing these reports, with the help of your bookkeeper—you may begin to clearly identify where far more is being spent than need be. This includes where you may be able to eliminate spending altogether, where you may be able to bundle services, or where you should be searching for more competitive pricing.
4. Cash Flow Forecast / Budget
A cash flow forecast or budget is a great tool to help you manage or predict the amount of revenues and expenses so you can plan for the better future to achieve your goals. A cash flow forecast or business budget is an important financial management system because it helps you manage your cash flow as well as identify potential shortfalls in cash balances or problems so you can act accordingly and make adjustments.
If you are having cash flow problems or need help in creating your cash flow forecast or business budget don’t hesitate to consult a professional who can see where your business is heading and to oversee your business financial activities on a daily or periodic basis other than just once in a year.
5. Rethink Pricing, To Make Invoicing Faster And Easier—And To More Accurately Calculate Projections
Another way to turn your profit into cash, is to rethink your pricing. For example, you may be shocked to find out just how much you are spending each month on shipping and postage—which may have you revisit your pricing structure. Also consider:
- Having a flat rate for your products and services;
- Creating a monthly service plan;
- Having a flat rate for add-ons;
- Raising your pricing by even a small amount;
Rethinking your pricing will make both short-term and long-term financial projections easier to calculate, so that you can plan your saving and spending accordingly.
It is essential that you do not let your financial standing fall through the cracks, because the longevity of your business counts on your financial stability. Turning to the 5 tips above will help you develop a clear picture of your financial standing—which is essential for improving cash flow.