Cash flow is the lifeline of any business. Most companies lack the necessary cash inflows to pay salaries, buy materials, and keep the business running. Businesses trying to grow actively cite poorly managed cash flow as one of their biggest challenges, which leads to slowed growth and eventually a shutdown of the business.
While a lot of people understand the importance of managing their cash flow, about two-thirds of small businesses still experience cash flow problems. Also, one in every five business owners admits that cash flow problems are not an exception but rather the norm. The good news is that if your business is struggling with financial consolidation, you still have the chance to revive your business.
Here are top 6 ways you can manage your business cash flow:
1.Require a Deposit for Large Projects
Insist on a security deposit equal to a minimum of 50% of the total price when working with a custom or unique order. Failure to require a deposit may force you to take a reduced payment at delivery time since unique products have a limited sales value. Moreover, you get to reduce any chances of a financial loss. Be sure to include this in your terms and conditions to avoid future difficulties.
2.Set a Late Fee and Clear Collections Policy
You don’t want to be in a situation where your customers delay payments. It’s essential to be strict as possible with your customers when it comes to timely payments. While you can consider negotiation with your customers, extremely late payment or failure to make any payments is unacceptable. To prevent this, you need to have a clear collections and late fee policy in writing.
3.Use Cash Flow Management Tools
Today’s technology gives you the necessary tools required to track, manage, and forecast your business’ cash flow. If you’re using small business accounting software like QuickBooks and Sage One, you have access to cash flow forecasting reports and other add-ons for cash flow management. Software like Float and Pulse can interface with other accounting software. This makes budgeting and forecasting easier.
4.Nurture a Good Relationship with Your Suppliers
While it’s okay to pay your suppliers on time, sometimes you need to let them consider your credit history and good working relationship. The largest amounts of cash that you spend goes to pay suppliers, and this money is the cash flow your business needs to operate. If you’ve built a good relationship with your suppliers by always paying on time, you’ll be in a better position to ask for flexible terms. Small minimum order quantities, better prices, and extended payment terms all have an impact on your cash flow.
5.Reduce Cash Outflows
Cash always finds a way out. As a business owner, you need to find ways to shrink cash outflows. There are different ways you can avoid these expenses like delaying product upgrades until necessary, buying used equipment, repair equipment as opposed to buying and exchanging products for services and supplies.
Also, non-working, obsolete, and idle equipment only occupies space. Sell this equipment and use the money to run your daily operations. The sale might result in a taxable gain, and this should be reported on your tax filings.
6.Implement Smart Pricing Strategies
Your business will be better positioned to get the product to the customer by adopting a flexible approach to pricing. Implementing smart pricing strategies not only keeps your cash flow worksheet full, but it also releases the money your business needs to launch new products or expand into other markets.
One of the trickiest parts of cash flow management is keeping the money coming in on a consistent and sustainable basis. By implementing these six strategies, you’ll have made an impact on your overall cash flow.