January 11, 2016
Whether you run a startup or have an established business, no doubt one of the biggest stresses for you in the current competitive environment is finding enough cash flow month after month. Indeed, inadequate cash flow is often cited as one of the primary reasons why so many companies fail.
However, if you take charge of your business finances — from tracking incomings and outgoings religiously, to keeping a close eye on inventory levels, cutting back customer payment terms, utilizing business cash-back credit cards and the like — it is possible to get your organization’s cash flow in a better position quite quickly. Read on for some tips to help you improve your company’s cash flow and alleviate stress in the coming months.
Track It to Change It
In order to improve cash flow in your business, you need to be very clear on the current financial position of your organization, and all of the regular expenses and deposits that come and go. To do this, it’s important to closely track all of the incomings and outgoings on a monthly, if not weekly, basis. By examining where and when you incur most expenses and receive most income, you’ll be able to more effectively plan for the future and stop yourself being caught unawares without enough cash flow to pay for bills, wages, superannuation, inventory, and the like.
As well, many business owners and managers are caught out when their company grows quickly. While growth is a great thing, it can cause issues if the costs associated with the expansion (such as the employment of extra staff members or the purchase of additional equipment or inventory) can’t be covered. Don’t forget to create a forecast for the future (the coming 12 months at a minimum) so that you don’t get blindsided by changes.
Watch Inventory Levels
Another good way to improve cash flow is to keep a very close eye on inventory levels. Many businesses come unstuck because too much money is tied up on inventory that is slow moving or just not selling at all. To keep your cash flow at optimum levels, make sure you regularly analyze your products to see what your best-selling items are and what just isn’t performing.
You should always have plenty of your “bread and butter” products on hand, but try to keep moving older, outdated, and slow-moving items regularly, rather than having them sit there for long. Have a sale on anything that is just sitting in your warehouse taking up space and you’ll quickly bring some extra cash in to the business that can be used to buy more of the stock that customers want. As well, this exercise will help you be more aware of what not to buy in future.
When you decide to add new products to your line, make sure that you start off by just purchasing small quantities so that you don’t end up with lots of money constantly tied up in unwanted stock. Remember, too, that customers love to feel included, so it often pays to get your top clients involved in voting on which new items you should incorporate. This might even help you to find out aboutdifferent products which customers want to have access to instead.
Examine Payment Terms
Another area where you can really quickly change your company’s cash flow outlook is payment terms. For starters, look at the clients you extend terms to and analyze how quickly they pay their bills. Many businesses get into trouble with cash flow because they let clients take as long as they like to pay for goods or services.
To avoid this situation, be very strict with terms and implement an overdue fee for late payments (as well as potentially a discount for those who pay early). Send reminders religiously, so that your clients quickly learn that you expect to be paid on time and that they can’t just leave it until they’re ready, and stop offering terms to any customers who repeatedly pay well over due dates.
In addition, don’t feel pressured to offer terms to new clients. It is best to set up strict policies that are adhered to at all times so that you don’t need to make the decision on a case-by-case basis. For example, you might decide that credit can only be used on orders over a set amount, or that customers must pay upfront for the first five to ten orders plus submit credit references before they are allowed to switch to 30-day payments or the like.
Secondly, look at the list of your own suppliers and see where you can negotiate to receive better terms. Try to arrange for longer timeframes for payments, and/or better terms such as free shipping, bonus goods, or discounts for repeat orders.
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