Cash flow is massively important to all businesses, especially the small ones, where money is typically tight. Bills, employee salaries and other costs all must be met, which means that a late payment or any other rupture in cash flow can have disastrous consequences.
An efficient and strong cash flow will help your business run smoothly and profitably. Read on to find six valuable tips for improving your business' cash flow.
A cash flow chart is a way to measure the money that goes in and out of your business. It will help you understand where and how you spend and make money, so putting one together is valuable, particularly for new businesses.
Tally all your fixed expenses for each month and combine this number with the estimated average for your variable expenses. Comparing this total with your average revenue will show you how narrow of a profit margin you have each month.
- Encourage faster (or at least on time) payments
Don't wait until the end of the month to send out bills. The sooner a customer receives an invoice, the sooner you're likely to get paid. Receiving money late can put you in a bind, so incentivise customers to pay quickly by offering discounts or other deals for prompt payments.
Otherwise, try reminding buyers that they haven't paid yet; it may have simply slipped their minds. Make things easier by calling up and taking payment over the phone. Also, protect yourself from delinquent buyers by performing a credit check before selling products (if possible).
There's no need for a business owner with a tight cash flow to pay off bills before they are actually due. That will only make staying financially afloat tougher. While taking care of your bills immediately might seem like the responsible thing to do, in doing so you're paying out money you might need if you fall short elsewhere. Check your bills to find the precise date they are due. Don't pay until then – though be careful, if you're late you may incur costly fees.
Having items in stock that aren't selling can damage your cash flow. Keep abreast of what's selling and what isn't, and make appropriate adjustments. While large, financially secure companies can afford to let products sit on their shelves, smaller businesses with tight cash flow shouldn't do the same. Discontinue products that aren't moving and consider offering deep discounts on the items that are leftover. Meanwhile, if an item is selling briskly, order more before you run out.
If you find yourself in dire straits, you'll need backup sources of credit to save your business. Apply for a line of credit from your local bank. If your business – and you personally – have a solid, responsible credit history, the bank should grant your request. However, make sure to get credit before trouble hits: the bank probably won't accept your application if your business appears to be failing, so prepare for a rainy day early.
Ultimately, the most effective way to improve your cash flow is to take in more money. While the five previous methods will all help, none can help as much as simply selling more products. Try raising your prices, increasing the variety of merchandise you offer, training employees in making sales, or improving the quality of your products. Of course, there are many other potential ways to increase sales – the best method for you will depend on the particulars of your business.
Good cash flow is critical to any business (especially to start-ups and small businesses) and can keep an organisation safe in times of financial difficulty; so don't ignore it. Use the six tips above to keep you on track.
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