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How To Prevent Cash Flow From Ruining Your Business

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There are many potential threats to your business, which you’ll have to manage on an ongoing basis. Competition could move in to threaten your territory. Defective products could cause you to lose consumer confidence. Your employees could leave or stop caring about the business. But one of the most dangerous threats is cash flow-the volume of cash coming into and going out of the business at any given time. If your business reaches negative cash flow and you have no way to compensate for it or recover, your business could go under.

So why does cash flow have the power to kill so many businesses, and what can you do to protect yours?

The Power of Cash Flow

Let’s start by evaluating why cash flow is so important to the life and sustainability of a given business. Cash represents your buying power, and your buying power is necessary for most aspects of your business. For example, you’ll need cash on hand to maintain your office and equipment, pay your vendors, and keep paying your employees. If you’re defaulting on your loans and your employees aren’t getting a paycheck, it won’t be long before your business is forced to close its doors.

Cash flow is also a point of vulnerability because it’s affected by multiple variables. Multiple elements of business management could impact the state of your cash flow, including:

  • How many paying customers you have. If you’re dealing with a customer shortage, you won’t have enough incoming revenue to cover your expenses, forcing you to tap your lines of credit (until they, too, inevitably dry up).
  • How you invoice your customers. Using a reliable invoice template will help you invoice your customers consistently. If you forget to send invoices, or if you don’t follow up on invoices you’ve sent that haven’t been paid, eventually, you’ll end up with a cash flow shortage.
  • How you manage expenses. Buying too much at once or allowing your expenses to accumulate endlessly can put a huge burden on your cash flow management.
  • How you pay your bills. Even the timing of your bill payments can have an impact on your cash flow, if you needlessly drain your cash to pay a bill prematurely.

All it takes is one major disruption in one of these areas to create a cash flow problem, and if that problem is allowed to grow worse, that could be it for your business.

Improving Cash Flow in Your Business

So what steps can you take to improve your cash flow?

  • Appoint a cash flow authority. First, it’s a good idea to put someone in charge of cash flow management. This designated authority, usually someone in your accounting department, will be responsible for keeping a close eye on your incoming and outgoing funds, and taking action if and when it looks like you’ll come up short. Most cash flow problems arise when nobody is watching the finances, so if you’re making weekly reports, you should be able to take proactive action before the problem gets any worse.
  • Keep a tight leash on purchases. The fewer outgoing expenses you have, the less likely you’ll be to face a cash flow problem. Reducing the number of loans and credit payments you have, as well as restricting purchases, can make your cash go further.
  • Conduct credit checks on new customers. Non-payment from customers is a major source of cash flow stress, but you can avoid at least some of this pressure by conducting proactive credit checks on all your customers. You should be able to weed out your biggest threats immediately.
  • Perfect your invoicing (and follow up). Iron out your invoicing practices. You should be invoicing customers consistently, in the same ways, and with terms that work in your favor. You also need a documented process for following up with customers who don’t pay you on time (because it will happen eventually). Polite, but firm emails are a good first step, followed by phone calls, then more aggressive action.
  • Carefully manage your inventory. Don’t keep more in your inventory than you currently need. Excessive levels of production or storage will be like sequestering cash, rendering it unusable for you. Inventory needs to play a role in your overall cash management.
  • Time your outgoing payments. Always pay bills as late as possible. This allows you to keep your cash for the longest period of time, helping you stay positive.

The good news about cash flow is that it’s usually a problem only because of some other fundamental problem in your business, whether it’s a shortage of incoming cash or excessive expenses. It’s entirely in your power to prevent a cash flow problem before it arises—as long as you take it seriously.

This article originally appeared on ValueWalk. Follow ValueWalk on Twitter, Instagram and Facebook.

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How To Launch Your Business In Less Than 30 Days

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Got a great business idea that you think might be the next big thing? Despite the uncertainty and the risks tagged to becoming an entrepreneur, you wouldn’t know until you try. Besides, it takes less than a month to launch a product or service. Here’s how you make that happen.

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Millennials To Gen Z: 5 Ways They Differ In The Workplace

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(Editor’s Note: The following article is a guest post by superstar entrepreneur and tech investor Jonathan Schultz.) 

There has been plenty of focus on millennials in the past few years, but it’s now time to redirect our attention to Gen Z. Right now Gen Z is entering the workforce and are ready to become the face of corporate America.

While there are plenty of similarities between Gen Z and Millennials, let’s look at a few ways they differ.

Gen Z is more competitive

Millennials have been said to be collaborative and teamwork focused and want to operate in an environment where they feel included and part of something bigger. Gen Z is said to be more competitive and want to be judged based off of their individual performance.

Gen Z also understands that there is a need for consistent development in skills in order to compete. This generation will do whatever it takes but certainly wants to reap rewards for it.

Gen Z is highly idependent

Gen Z typically likes to work alone and many of them would rather have their own office space as opposed to working in open and collaborative environments. This generation also prefers to manage their own projects, so their unique skill sets can be exposed.

Gen Z does not want to depend on others to get things done.

Gen Z prefers face-to-face communication

Millennials love to communicate via email, text, and anything other than face-to-face. The Gen Z group are huge in-person interactors and prefer it over the less personal email or text.

Millennials have received a lot of “bad press” for being so attached to their phones and Gen Z wants to transition out of that shadow. This generation will want more in-person meetings to discuss projects, etc.

Gen Z knows technology

Gen Z has known nothing other than technology their entire lives. They grew up with Facebook, texting, etc. Millennials still grew up with landlines and dial-up internet.

While Millennials are tech-savvy, Gen Z has been living in a world of smartphones for as long as they can remember. This generations relationship to technology is almost instinctual rather than learned.

Gen Z expects the workplace to conform to their needs

Gen Z wants everything to be catered to their needs. This is why companies have had to re-think the amenities they offer and how they structure their offices in order to meet the needs of this young workforce.

Companies now have to appeal to this younger mindset and have a less cookie-cutter approach to the environment they create for their employees. While millennials also expect the workplace to conform to their needs, for Gen Z, it could mean the difference between accepting a job offer or not.

There are obviously very clear differences between these two generations. Yes, every member of a generation will have their own unique traits and characteristics, but overall you will see that Gen Z is a more independent and technologically-advanced group in comparison to Millennials.

Jonathan Schultz is an entrepreneur, real estate tech investor and influencer. He’s the co-founder of Onyx Equities, a leading private equity real estate firm, and has been voted one of the most powerful people in real estate. Follow Jon’s blog here

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GRAPH: 63 Fintech Startups That Are Targeting Millennials

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Many fintech startups are leveraging existing technologies already popular among young adults such as social networks and mobile messaging.

Project crowdfunding sites GoFundMe and Andreessen Horowitz-backed Tilt, for example, mirror or take advantage of social networks and are largely popular among college audiences. Google Ventures and General Catalyst-backed HelloDigit transfers money directly via text message.

The graphic below breaks down the set of primarily US-based fintech companies appealing to the millennial generation including RobinhoodAcornsWealthfrontEarnest and more. (As we’ve also highlighted separately, startups in the digital banking market have attracted more than $10B since 2010.)

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