A healthy cash flow is vital for business success. As any successful entrepreneur will tell you, positive cash flow depends on one’s ability to be frugal. Cultivating habits to build positive cash flow can help settle debts, increase assets, and protect against future financial challenges. Really, this is no trivial matter! Everyone, even our kids, needs to understand how to create positive cash flow. The objective is to ensure that more cash enters (positive cash flow) than exits (negative cash flow).
Cash flow comes in three ways: operating, investing, and financing. Your cash flow management habits should ensure that you always have enough working capital to operate your business efficiently and effectively. Taking small steps like the ones mentioned in today’s blog can help you cultivate habits to build positive cash flow and dramatically increase the money you can put towards an asset.
You want to poise your business for success, right? I completely understand. However, ramping up your cash flow situation doesn’t always prove to be an easy endeavor. Many people get stuck in a rut by allowing their spending to grow at a proportional rate to their cash flow. If you want to fuel your wealth-creation, you have to change your approach and start thinking a bit differently. I encourage you to step out of your comfort zone and foster these six habits to help safeguard your spending, budgeting, and cash flow in a way that sets you and your business up for success. Consider the following habits to determine whether you are generating positive cash flow in your business.
Make Smart Purchases and Be Realistic
The last thing you want to do is throw your hard-earned money out the door. To avoid doing so, you want to make intelligent purchases and choose quality products that will stand the test of time. It might feel nice at the moment to buy that flat-screen TV or brand new sports car, but what happens to the value of that item as soon as you walk out of the store? It depreciates in value, immediately. Do your research beforehand and be willing to invest your money in assets that will appreciate over time. Being realistic with your spending will give you the best possible chance for success.
Avoid Needless Debt
There are many reasons why people spend money they don’t have, and if we’re being truthful, most of the reasons can be attributed to our materialistic wants and desires. You may want that fancy new sports car, but you certainly don’t need it to survive. Discretionary spending can set us back, and even worse, put us in a stronghold of debt. I always recommend following this simple rule: if you are considering making a purchase, sit on the decision for at least one week. If at the end of the week you discover that the purchase is essential, then do your research and find a great deal. Remember, debt steals from your income. In a world where anything can be borrowed or financed, you need to be extra careful to protect your cashflow. If you want to get on track and become debt-free, check out our debt-free calculator.
Challenge Yourself to Make a Budget, and Stick to It
A budget is a management tool, but you’ll end up tossing it right out the door or leaving it untouched if it’s not a working budget. Your budget should be a living and breathing document that adapts and expands in synchronicity with your plans. Realistically, you will need to regularly update your budget with the latest cash flow projections. As humans, our businesses and needs are constantly evolving, so your budget should do the same. Learn more about how you can organize your finances with a budget by clicking here.
Use a Cash Flow Worksheet
There is no one-size-fits-all when it comes to cash flow worksheets. Whether you’re using an excel sheet or keeping a written journal, it’s essential that you manage your cash flow in some documented form. Cash flow management involves keeping track of your revenue and expenses in terms of how much money is coming in compared to how much money is going out. If you can project your cash flow, you can prevent overspending or any other pitfalls that might steer your business in the wrong direction. Microsoft Office offers a few different cash flow templates that you can easily download to your computer. If you have your cash flow techniques in place, you will feel confident knowing that your cash flows are in balance, and the future of your business is in safe hands.
Have a Contingency Plan
Do you have resources allocated in case an emergency occurs? If not, you may want to think twice about implementing a contingency plan. Think of a contingency plan as the “plan B” in your operation. Unpredictable factors ranging from an economic crash to an unexpected late payment can disrupt the healthy cash flow of your business. It’s beneficial to have a strong risk management system in place accompanied by an established recovery and response procedure. You always want to expect the best but be prepared for the worst.
Take a minute to list all the things that could potentially go wrong in your business. Whether they’re tiny slip-ups or worst-case scenario problems, your overall preparedness will help act as a buffer to mitigate the situation at large. If you’re uncertain about where to start, I always recommend that you have a hefty cash reserve in some sort of savings account. That way if the unexpected occurs, you will have a reserve to fall back on. Contingency plans don’t always have to reflect on the negative, you want to have a contingency plan for the positive events that may occur as well. If your business increases tenfold within a year, do you have a plan to keep up with the growth? If your goal is to protect your cash flow, a contingency plan is not only important but essential for business continuity.
Adapt to Change
Remember earlier when I mentioned shifting your mindset to focus on needs instead of wants? This is a part of adapting to change. Sometimes, your plans don’t work out and it’s completely out of your control. Occasionally, you may need to make a big purchase on your credit card. If your mindset is too rigid, every little bump in the road will cause you to succumb to defeat. When things inevitably change, be open to new possibilities and opportunities. Our businesses are constantly evolving with our ever-changing world. When you grow through change, you welcome new adventures into your life. A few small changes can help increase your cash flow, and trust me, you’ll never know until you try!
If you’re struggling to increase your cash flow, start small and try incorporating just one of these habits into your life. If you feel inclined to, add a few more. Positive financial habits will help you achieve your wealth-building goals. Before you know it, you will be routinely functioning with habits that create long-term success. If there are any habits that I left off this list that have helped you generate consistent positive cash flow, feel free to share them with me in the comment section below.
When it comes to financial success, there are many resources available on the market. It’s not my goal to give you a quick fix solution but instead, teach you the specific knowledge needed to increase your cash flow, protect your assets, and succeed in your wealth-building journey. Knowledge is built from the ground up, I know this firsthand. That’s why I’ve created a complete list of free business, real estate, financial, and personal development resources that you can access with a click of a button today. Whether you’re a newcomer discovering the world of finance or an investor of 40 years, I encourage you to use the resources in my library to grow your knowledge. Sign up below and you will receive an email from me with all my favorite wealth-building resources.