If you are not on top of your cash flow management as a business owner, you risk going bankrupt. According to a US Bank research, poor cash management is responsible for 82 percent of business bankruptcies.
One common example of cash flow issues is when your payables (debts) are due before your receivables (money from a sale you haven’t yet received). This, in turn, means you won’t be able to pay your payments on time, which can lead to bigger issues, such as not being able to make payroll on time and facing creditworthiness questions. Consider applying some of the following tactics to increase your cash flow.
Tips to improve your business’ cash flow:
1. Make cash flow projections
Accounting records that are accurate, timely, and relevant (ART) allow you to develop a forecast for your business based on historical performance. Businesses should at the very least assess their cash flow on a monthly basis. Enter monthly cash inflows and outflows, as well as planned capital purchases and financing needs, into a spreadsheet. So to assure you’ll have enough cash on hand to cover your expenses, you need to keep track of your actual cash inflows and outflows. Being proactive with your cash flow allows you to plan for historically difficult times or seasonal trends.
2. Improve your accounts receivable
You can remain on top of unpaid bills and reduce the time it takes to get paid by actively managing your accounts receivable. One approach is to encourage clients to pay in advance by offering a little discount. Offering a choice of payment alternatives, such as online or credit card payments, will make it simple and easy for a customer to pay you. While these solutions may incur extra fees, receiving money quickly is very crucial. This will help ensure your cash flow is enough and it also avoids time and energy spent on collection.
3. Review your accounts payable process
Setting up and managing your accounts payable process is critical to boosting your company’s cash flow. If your accounting department does not already use software to help manage your accounts, you should consider purchasing one. Next, share with your staff whose invoices are most important so that they can be paid first. Don’t allow unpaid bills to go between the cracks.
4. Make use of your idle cash and other assets to work
Putting idle cash to work is another strategy to boost business cash flow. Your idle cash is money that isn’t earning you anything.
If you have substantial amounts in non-interest-bearing accounts, chances are you can find a better place for them. You could try transferring them to an interest-bearing account. The annual percentage yield (APY) is either 5% or 1%. Another alternative is to use the funds to expand your firm, pay down debts and lower interest payments, invest in new technology, or prepay some bills.
5. Manage your stock and suppliers
You don’t want to pay suppliers for inventory that isn’t moving. Perform an inventory check. Make a list of the items you acquire that aren’t moving as quickly as your other things. Try to strike a balance between the income you receive from consumers and the expenses you must incur for stock.
Replace slow-moving and obsolete stock with stock that has a faster turnover. Monitor stock levels and have processes in place to indicate when new stock is required. Find vendors who will only supply you with stock when you need it. A ‘just in time’ ordering mechanism eliminates the need to pay for a stock that is sitting in storage.
6. Renegotiate Existing Service Contracts
Another suggestion for increasing cash flow is to review service plans and contracts on a regular basis. To begin, examine your internet, phone, copiers, software support, and janitorial/building maintenance contracts for areas where you might save money. Because improved technologies and increasing market competition have driven down rates on many services, it’s worthwhile to shop around for a better bargain.
7. Lease, don’t buy
Leasing allows you to pay in small installments, which improves cash flow. Leasing equipment may be a viable alternative for business owners with limited resources or who require equipment that must be changed every few years. Leasing payments are usually deductible as business expenses on your tax return, lowering your net lease cost.
Even profitable businesses might run into cash flow issues if their debts are due before sales revenue covers their bills. By maximizing cash flow, you may help your business earn more quickly, accomplish targets faster, and cut costs.
To learn more about how outsourcing can improve your business, you can read: 5 Ways Outsourcing Can Help Your Business Succeed And Save Money