Money makes more money. So, if you want to improve your cash flow, then utilize existing cash in the business to invest in another business or buy assets like land and buildings. When you invest cash in these areas and get positive cash flow, your cash flow improves.
Be careful when investing existing cash in other investing activities.
Ensure that you avoid the cash flow investing mistakes i have shared below.
Cash flow from investing activities mistakes to avoid
Extracting cash from one business to invest in another one
The big mistake entrepreneurs make is to extract cash from the existing business to invest in another business or property, without giving thought to cash flow stability in the existing business.
This happened with one of my clients who has a dental business. He had two dental practices at the time, and the business was doing well. So he extracted the cash to invest in the third dental practice plus investment property. He soon realized that his future cash flow would not cover future outgoings as the third business took time to become profitable and ran into cash flow problems.
The lesson here is stability is more important than scalability.
Not able to utilize existing cash to invest in other businesses when you have the capacity to do so
Contrary to the previous mistake of extracting cash from the business, when it cannot afford to do so, many entrepreneurs do not utilize existing cash when they can do so. When entrepreneurs don’t invest cash, they miss out on growth opportunities.
Not invest in higher cash flow generating assets
Another cash flow investing mistake is not knowing how to select higher cash flow generating assets. If you don’t know it yourself, get guidance from those who have done it well. You can also follow seasoned entrepreneurs who invest in a bigger deal with other entrepreneurs. So now you know the mistakes one should avoid while increasing cash flow by investing. Let’s look at what you can do to improve cash flow.
3 cash flow investing activities – strategies to improve cash flow
Sell unused inventory
If you have damaged or obsolete inventory, get rid of them and receive cash. This way, you will be able to improve cash flow.
To do this, have good inventory control procedures to know which inventory items you need to keep to sell later and which ones are put for clearance.
One of my clients, who sells luxury sofas, has monthly clearance sales at the end of the month to get rid of unwanted inventory to get cash flow and free up space in the showroom. This monthly unused inventory sale helps his business to improve cash flow and takes care of around 10% of his overall monthly spending.
This strategy doesn’t only apply to if you sell physical products. For example, think about any office equipment you don’t use anymore. Then, you can sell them to get cash.
Use a higher interest rate savings account
This strategy is so obvious that sometimes we forget about it. For example, one of my marketing agency clients puts away £100k per quarter in higher interest rates savings accounts and only takes it out when he needs to pay corporate tax once a year.
Repair rather than buy new capital equipment
This strategy is super simple and effective. Whenever possible, repair rather than buy the new capital equipment, to retain more cash flow.
One of the biggest mistakes people make is to say, “i want the best x, y, and z because my friend also has bought similar assets.”
The role of any equipment is to perform a task. So as long it’s doing its job, there is no need to have new capital equipment.
Summary
In this section, we looked at cash flow from investing activities in detail- what it means, why it is important, common mistakes business owners make, and strategies to improve cash flow by maximizing your cash flow investments.
