The cash is only one side of the coin. On the flip side having positive cash flow and enough cash on hand for dealing with unexpected expenses and inevitable investments at a certain point in time is crucial for business survival. The business positive cash flow is often considered a key indicator of its potential long-term success. The business may have all the revenue in the world, but without the ability to generate sufficient cash for its operations, timely, it can easily fail.
Answering this question will take far more time than you expected. And there is no only one answer to this question. Because, the answer given now, may not be applicable in the future. The answer needs to be an evolving one, as the economy is evolving, as the business is progressing, as the environment is changing, as the technology is innovating. In one sentence, the change is constant, but the cash flow management strategy shouldn’t be.
Having said that, incorporating change in every aspect of a business is inevitable, especially when it comes to financial decision-making regarding cash flow. Incorporating change timely and being resilient to change gives your business a competitive advantage in the market.
The three main pillars of a strategy for maintaining positive cash flow:
I. To grow short-term, or near-term positive cash flow, change the pricing models and experiment with a changed revenue stream. You can go from a generous to an aggressive approach with your customers. Examples are:
II. To maintain mid-term liquidity, you need to cut expenses and reallocate resources:
III. In the long run, the cash flow will always be affected by the competitiveness of the business on the market. Since running a business is a marathon, not a sprint race, you will need to learn how competitive advantage works, and how to leverage your potential over competitors. Your competitive advantage can be:
Identify what your advantage is and reallocate your resources towards your competitiveness. Invest your free cash wisely.
Remember, by cutting the expenses and changing the pricing models for your customers, you are increasing the margins that will help a business spin-off more cash which can be used to fund operations. So, all these cash flow management changes will only make sense when the resources are allocated cautiously and invested properly.