When it comes to the health of your small business as a technology solution provider, especially during times like the pandemic we are moving through now, almost nothing is as important as positive cash flow. In fact, according to Fundera, U.S. Bank says that over 82% of businesses fail because of poor cash flow!
By definition, cash flow is simply the relationship of money coming into and out of your business in measurable increments. Positive cash flow is King. It’s positive when you have more money coming in for a period vs. going out the door. For example, if in January you pull in $20,000 from sales, secure a $20,000 loan and you pay out $39,000 in payments and expenses you have $1,000 in positive cash flow. Long live the King!
Negative cash flow, on the other hand, when money coming in is less than money going out…well, that is more like the Grim Reaper! If in February, for example, you have better sales than you did in January, say $30,000, but no new loan deposits and the same $39,000 in expenses, guess what? You have a negative cash flow of $9,000!
You know that you want positive cash flow–you’re building your Kingdom after all. The question you may struggle with, however, is how can you more consistently achieve positive cash flow no matter the business climate?
Below are the top 3 things you can do to keep cash flow more consistently positive:
1. Be ready to flex like a good sword
At Tigerpaw Software, we work with just about every kind of provider you could think of: Managed IT, VOIP, Cybersecurity, Managed Print, Cloud… they are ALL our customers. The strongest customers we have are really adept at selling what people actually want, even when what they want changes. In order to maintain positive cash flow in changing times, you’ll need to bend it like Beckham. You’ll need to flex and adapt what you’re selling over time and based on fluctuations in the market.
For the last 5 years, you might have had booming sales in remote desktop management for large corporate offices. Then the pandemic hit. Flexibility means adapting to deliver similar services for a mostly remote workforce. When the COVID-19 lockdown eases and employees flock back to their offices, well, you’ll have to flex your offering again. Even though your core expertise is the same–managing computers for company employees–the nuances of how that is done will be critical as you grow. Don’t just take our word for it. Check out this blog by Entrepreneur Magazine and get 7 great additional tips on getting ahead during the Coronavirus Outbreak!
2. Recurring revenue is the OTHER king
Tigerpaw Software knows a thing or two about the importance of recurring revenue to ensure positive cash flow. We’ve been around for over 30 years and have experienced many waves of positive and negative cash flow. That is until just a few years ago when we became a cash flow positive business 100%. Even during the pandemic. How? By moving all of our business to recurring revenue.
All of our customers pay us a fixed monthly fee per user. We know exactly what our minimum incoming revenue looks like and can manage our outgoing expenses accordingly to ensure positive cash flow each and every month. This is much, much harder to do for traditional sales models when every month starts at zero and when customers are slow to pay.
Make no mistake, moving from a traditional month-to-month sales model to a recurring revenue model can be quite painful, but the reward on the other side is immeasurable. Even during the pandemic, our customer loyalty and retention have been solid because recurring models mean it’s easier for your customers to pay you. There are no big up-front decisions to make, and they get used to the nominal monthly payments for your exceptional services.
For a more in-depth recurring revenue learning experience, check out Tigerpaw Radio’s podcast entitled “Realizing the Recurring Revenue Dream” and listen to great advice from two companies that have made the leap successfully.
3. Predictable expenses keep the coffers flush
The only thing worse for positive cash flow than spotty and unpredictable revenues is big and spotty lumps of accounts payable! If you can acquire most of the tools and services required to manage your business through fixed and predictable monthly fees, it will do wonders for helping you hit positive cash flow consistently.
As your business grows, so do your expenses, but predictably and in lock-step with your revenues (which should also be recurring as per point #2!). It’s how we price things at Tigerpaw. You can start small and increase investment in our business automation platform as you add more users to manage all those new customers you win! This will make it much easier to maintain positive cash flow as monthly expenses are consistent and predictable. We’re not saying that there aren’t situations where capital expenses can make more sense than operational expenses, but recurring and predictable operating expenses will do wonders for your cash flow health. To learn more about CapX vs. OpX, check out this blog by Software Advisory Services.
If you practice the above 3 tips, your kingdom will have a much more consistent and positive cash flow. Cash flow is your new King and adapting your business model to reflect this will ensure that you survive and grow no matter the economic climate.
If you would like to learn more about how you can build a business around positive cash flow business modeling, Tigerpaw is here to help. Contact us today to start your one-to-one PCC (Positive Cashflow Conversation). Yes, we made that acronym up and you’re free to start using it.