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Businesses With the Best and Worst Cash Flow

May 26, 2023

Businesses With the Best and Worst Cash Flow

Ariel Gottfeld

Ariel Gottfeld

Business cash flow is crucial to keeping an operation up and running. Having positive cash flow means that a business can cover its expenses and may even have a surplus to invest in growth. But some companies have better cash flow than others.

Let’s look at some of the best and worst businesses for cash flow.

Best Businesses for Cash Flow

What is a cash flow business? A cash flow business is a business that naturally generates steady cash flow. These types of businesses often share similar characteristics, even though they may be in different industries. These include:

  • Low overhead
  • Minimal startup costs
  • Loyal customer base

These types of businesses typically have clients or customers who need their services on a regular basis. The reliability of repeat business helps the company maintain positive cash flow.

Some of the best cash flow businesses include:

Service Businesses

When it comes to business cash flow, service businesses are one of the best options, particularly the trades. These include:

  • Landscapers
  • Contractors
  • Domestic and commercial cleaners
  • Massage therapists

These types of businesses generally require little capital investment to get started, they are often a cash-based business, and they have relatively little overhead. Once the business is established and starts acquiring reliable, regular customers, the business also enjoys reliable cash flow.

Service-based businesses like landscapers and cleaners are typically needed regularly, so it’s much easier to maintain a list of repeat customers.

Home-Based Business

Another great cash flow business is a home-based business. Operating a business out of your home immediately eliminates one major cost for most businesses: leasing commercial space.

Generally, home-based businesses have little overhead. Care-based services, like child or pet care, will provide you with steady cash flow because clients need your services on a regular basis.

Professional services or other project-based businesses can also provide steady cash flow if you are diligent about invoicing customers and price yourself right.

Professional Service-Based Business

Some of the top companies with the most cash are professional service-based businesses, like:

  • Accountants
  • Law firms
  • Real estate agents
  • Marketing and advertising firms

In particular, professionals that work on retainers tend to have reliable cash flow because clients pay a set amount at regular intervals for the services provided.

Cash flow is only disrupted if a client defaults on their contract or chooses not to renew it. However, having a mix of clients helps offset this risk.

Long-Term Care and Health Care

In general, health care and long-term care-related businesses have consistent cash flow because their client base needs their services on a regular basis.

These types of businesses may require a large capital investment to get started, but once established, cash flow is consistently reliable.

As more people enter retirement, the growing need for health care and long-term care only makes cash flow more reliable.

Finance and Insurance

Finance and insurance are also high cash flow businesses because they provide stable cash flow year-round and often without the high and low seasons that come with other professional-based services.

Financial advisors and independent insurance companies have a client base that needs their services every month of the year. While you may need training and certification to enter these careers, the overhead is minimal once you’re established.

Often, the financial products offered by insurance companies and financial advisors are developed by a third party that invests in the marketing and product development.

Software as a Service (SaaS) Companies

Many experts argue that the best cash business is a SaaS company. SaaS companies offer software as a service through subscriptions. Clients commit to a subscription, which provides regular, reliable cash flow.

Depending on the service, clients may commit to a month, four months or even a year. In some cases, canceling the service early (i.e., before a 4-month or 12-month contract term is up) may result in additional fees for the client.

A SaaS company is a high cash flow high margin business, but it also has other advantages that help provide consistent cash flow, such as:

  • Low overhead
  • Low upfront costs – cloud-based applications are less expensive to develop and require few materials

With more businesses turning to SaaS solutions, there’s a growing demand in this field that makes it even better for cash flow.

Worst Types of Business for Cash Flow

We've talked about companies with the most cash, but what about businesses that struggle with cash flow?

These are businesses that may:

  • Require large capital investments
  • Have high and low seasons
  • Have inconsistent or unreliable sales

Some of the worst types of businesses for cash flow include:

Seasonal Business

In general, seasonal businesses have poor cash flow, even if they are cash businesses. Why? Because their sales are inconsistent. They have busy seasons where sales are booming, and once that season is over, sales are minimal or even nonexistent for the rest of the year.

Examples of seasonal businesses include:

  • Holiday- or event-based businesses
  • Ski resorts
  • Hotels
  • Farms

A ski resort, for example, will likely get all of its business during the winter season and may close down for the spring, summer and fall months.

Seasonal businesses must manage their cash very carefully if they want to stay in business. Otherwise, they can find themselves quickly running out of money to cover expenses. Because cash flow maintenance is so crucial, many of these businesses only hire workers on a temporary basis and shut down their facilities during the slow season to keep cash to a minimum.

Restaurant Industry

Some of the worst cash flow businesses are restaurants, even though they are often cash businesses. Restaurants often have:

  • High overhead costs
  • High labor costs
  • Low margins
  • Slow and busy periods

For restaurants, demand can be difficult to predict and costs for ingredients can change from one day to the next. Like seasonal businesses, restaurants may also have high and low seasons, especially if they are located in a tourist town.

Real Estate Developers

Real estate development may seem like a lucrative industry, and it can be, but it’s also very high risk and cash flow poor.

Property development requires a large initial investment and long periods of time before a return is seen. The one upside to this type of business is that once the waiting period is over, you receive a large payout and can begin the cycle again.

Still, the inconsistency in cash flow often means that developers have to work another job to keep their development business up and running.

How to Keep Track of All Financial Transactions

Regardless of whether a business has excellent or poor cash flow, management is crucial. Keeping track of all financial transactions can help businesses of all types oversee their cash flow.

But how do you keep track of all financial transactions?

Here are some tips:

Use Software

Using software is one of the simplest ways to ensure you’re keeping track of all financial transactions. Software will record your transactions automatically if you have connected your bank account to your software program.

With software, you can keep track of transactions automatically and greatly reduce the risk of error. However, having to keep track of receipts and invoices manually can be time-consuming and challenging. The right software solution can handle this tedious task for you.

You can also use software, like Cash Flow Frog, to manage your cash flow and even create cash flow forecasts.

Software saves time and reduces the risk of error, making it a smart investment for cash flow management.

Use a Business Bank Account

One simple way to keep track of all business expenses is to use business bank cards. As a general rule of thumb, it’s best to keep personal and business accounts separate.

Using a business bank account exclusively for business purposes will make it easier to keep track of all of your transactions.

Use Receipt Scanners

Receipt scanners are a great way to keep track of expenses if you keep physical receipts. These scanners allow you to keep electronic records of all receipts from business transactions.

Receipt scans can be saved on your business computer or on a cloud-based storage system.

Final Thoughts

Some businesses are better for cash flow than others. Businesses that tend to have a more consistent and reliable cash flow are those with regular customers, low overhead and minimal capital investment requirements. On the other hand, businesses with inconsistent returns or seasonal highs and lows tend to be cash flow poor.

In either case, proper management of your financial transactions can help you better manage your business’s cash flow.

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