5 Tips to Maintain a Steady Cash Flow

You’ve got a monthly outgo of money for equipment, supplies, rentals and pay for you and your employees. However, your income might not be nearly as regular. Here are a few tips to maintain your cash flow, so you can keep paying the bills while you work on paying projects.

1. Maximize Income Regularity

When you work as a contractor, your accounts receivable and accounts payable can be quite out-of-sync. You work on a project that takes three months, and then you may have to wait 30, 60 or even 90 days to collect on it. All the while, you have monthly expenses. If you are relying on yourself to make sure that your debtors pay you within the specified time frame, you want to make that one of the most important tasks you do each week. Limit payment intervals as low as you possibly can, especially at the beginning. Create a deposit system so that you aren’t waiting until the end for 100 percent of what’s owed. If you have trouble getting companies to pay up, think about offering incentives for a timely return.

2.Control Monthly Expenses

Of course, all the income in the world might not help with your cash flow if expenses get out of control. Before you start your contracting business, research all the expenses you can expect. Shop around so that you know you are getting the best quality for the money you pay. Determine whether renting or buying may help you minimize the amount of money you have to pay each month. Be careful about how much you choose to finance on credit, especially if you are counting on a higher amount of regular income you may not be able to guarantee. Keep detailed records about your regular debts or obligations, and when they must be paid. If you wait to pay until the money is due, you can leverage the cash until then.

3.Maintain Cash Flow Projections

Putting a regular examination of your cash flow on your schedule is the way to keep your business afloat, especially in the early years. At first, your cash flow assessment might need to run week to week, and then month to month and eventually, quarter to quarter. Your expenses could be highly unstable in the beginning, when you have to pay more to get established and buy the inventory and equipment that you will later use. Take note of anytime your cash flow projection came in too low, so that you can prevent it from happening again. Continually revisiting your goals can help you to know when you need more income, and how your business is doing financially.

4.Preserve Your Reserves

You never know when something is going to happen that requires more liquid assets than you expected. That project that went over budget or the site damage that was underinsured could both cost you. Saving as much as you can in cash reserves helps you to ride out these bumps in the road. No one wants to apply for emergency financing or be unable to pay the most important expenses that keep a business running from one month to the next.

5.Obtain Financing in Advance

Don’t let worry that you might not be an attractive candidate deter you from applying for financing as early as you can. No matter how a lender looks at a brand-new business, they will look less kindly on a brand-new business that needs money today. If you suspect that you’ll need some funds to cover a cash flow shortfall from time to time (and there is plenty of reason to believe this will happen eventually), you should apply for a line of credit long before you actually need to use it. This way, the money is already at your fingertips, and you won’t have to wait for approval on it.

Successful businesses are always the ones that manage to keep their cash flow in a solid balance between their income and expenses. If you follow these tips, you can help your business stay in the black and minimize the damage going into the red could do. To start your career as a contractor, contact CSLS today!