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Cash flow is the difference between money coming into your business and money going out over a set period of time. Positive cash flow is a sign of business health. It means you have enough cash coming in to pay for salaries, supplies, and transportation costs.
Whatever the job you’re on, you need the right tools to do it properly. The same applies to the financial side of your business. Taking advantage of the following financial tools may help you boost your cash flow.
Your Business Credit Card
Use your business credit card to pay for day-to-day supplies, and take advantage of your card’s interest-free grace period. Depending on when you make the purchase, you may have up to 26 days after receiving your statement to make the payment. This can help free up some cash. Some cards also come with cash back on all your purchases while others offer points or rewards.
A Line of Credit
Having a line of credit in place to cover short-term needs is a much more efficient way to manage your cash flow than trying to get a loan in a hurry. That’s because once you are approved, you can draw on the money anytime you need it, without having to apply again. And you pay interest only on the amount you borrow.
Combining a line of credit with a credit card can be a smart way to manage cash flow.
High-interest Savings Account
Why not put your cash to work? A high-interest savings account for your business allows you to earn a competitive rate of interest on your cash but the funds are always accessible. You earn interest every day on each dollar saved, and can withdraw the money whenever you need to.
If you bank online, it’s easy to move money between your chequing account and high-interest savings account.
Analyze Your Cash Flow
Spring and summer are typically the busiest seasons for contractors, while work tends to be slower during the winter months.
A cash-flow analysis can highlight the cycles in your business. Use this information to time your borrowing and hire or reduce staff according to your expected needs.
Don’t forget to put some cash aside when the work is rolling in. You may generate most of your cash flow eight months of the year, but it has to cover 12 months of expenses.
Business-building Tip
Consider boosting your marketing efforts during the slower winter months. Potential clients will probably be thinking of any work they need done in the spring. Quoting and scheduling during the slower months can also help you plan your staffing needs.
Lease Instead of Buy
Consider leasing a piece of equipment or vehicle instead of buying it outright or taking out a loan. You’ll free up some cash that can be used to tide the business over when cash flow is tight.
Your business banker or accountant can help you find other ways to get boost your cash flow.
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