8 Ways to Increase Cash Flow

Every small-business owner knows the trouble that comes with managing the ins and outs of cash flow. Cash flow problems have a habit of sneaking up on a business, especially in a rocky economy. If a business is earning a profit, many business managers simply assume that cash flow is satisfactory. But even if profit is good, cash flow can be bad. Following are eight tips to maintain cash flow in your business.

1. Respect and understand financial statements. Many skin care businesses don’t even maintain accounting records, let alone produce financial statements. If you don’t make an effort to prepare, review and completely understand your financial statements, then you need to ask yourself why you’re in business in the first place. This especially holds true for the statement of cash flow, because an abundance of invaluable information is available from this most commonly overlooked and mismanaged financial statement.

2. Plan, do projections and plan some more. Proper planning is essential to the launch, growth, management and ultimate success of a skin care facility as measured by the ability to generate profits and, just as important, to avoid running out of cash. Having access to sound financial plans structured for different operating scenarios is an absolute must.

3. Focus on capital and cash—the lifeblood of your business. One of the most common reasons small businesses fail is that they lack adequate cash or capital, not only to survive difficult times, but also to prosper during growth opportunities. Remember, one of the greatest losses a small business can realize is that of lost opportunity.

4. Understand your selling cycle. The selling cycle in its entirety spans from the very start of the process when a product or service is first visualized and developed to supporting clients after the sale and developing additional products or services that may be in demand. If not properly managed, the selling cycle generally becomes one of the largest consumers of cash in a business.

5. Manage your disbursements cycle. To counteract the selling-cycle cash-consumption machine, skin care facilities need to understand that the disbursement cycle (managing expenditures and cash payments to vendors, employees and other creditors) can be leveraged and managed to be a primary source of cash for your business.

6. Be creative to generate cash. The following three areas offer significant opportunities for creativity when looking to improve cash flows: Turn your assets over more quickly; leverage your vendors, suppliers and financing sources; and manage external sources of cash proactively.

7. Balance the balance sheet. Many spas overlook the concept of properly managing the financial structure of their balance sheets. Your business needs to strike a proper balance between making sure that current assets are financed or supported with current liabilities and making sure that long-term assets are financed or supported with long-term sources of capital.

8. Always think of CART. CART stands for Complete, Accurate, Reliable and Timely. Your facility’s financial and accounting information system needs to produce CART financial information, reports and data that management can use to make informed business decisions.

When you have the proper systems in place and know what to look for, you can keep cash flowing, helping you to grow a successful business.

Tage C. Tracy is principal owner of TMK & Associates, an accounting, financial and strategic business planning consulting firm and is the co-author of Cash Flow For Dummies (Wiley, 2011).

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