Cash flow is your business’s life blood. When you manage your cash flow well, you know that you are keeping your business in good shape. Let us look at how to manage it.
1. Focus on Cash Flow
This sounds obvious, but many small businesses, especially new businesses, assume they need to borrow money, and they concentrate on building turnover and generating profit. Both are important, but all businesses must get their cash flow in balance, and they must do it as soon as possible. They must also do it consistently.
2. Constantly Monitor Your Cash Flow Position
A number of accounting software packages have in-built cash flow monitors, so you can get daily, weekly or monthly reports on how much you owe, and how much is owed to you. Using a monitor (even if you do it by hand) will keep cash flow in the forefront of your mind, and your actions.
3. Make Sure Your Customers and Clients Pay on Time
They buy from you, you deliver, they should pay. When they know you expect them to pay on time, they are more likely to do so. If you have a cash business, it is easier – they pay at the time, or they hand over a credit card, and you get paid a discounted amount in a day or two.
If you run a business where you invoice your customers, make sure they know when payment is due, and that you expect them to pay. You are not an interest-free lender, and you should not allow any customer to take advantage.
4. Agree Sensible Ways to Get Paid Sooner
You may decide to discount invoices that are paid in 15 days, not 30 for example. If you do this, only do it for your best customers. Let other customers earn the privilege. You may offer a discount for payment with order, or you may require a deposit up front in certain cases.
These two ideas may eat into your profits, but they may minimize the interest you pay to your own lender. They may enable you to negotiate a discount with your own suppliers for paying them early, so your profit does not suffer. If you get paid sooner by more customers than you pay your suppliers, you may win both ways.
5. Slow Your Outgoings
Even though you get some or all of your customers to pay on time, see if you can (without upsetting your suppliers) delay your own check-writing. If you have more coming in than going out, your cash flow will be good.
6. Raise Your Prices
One way to manage cash flow is to have more cash coming in for the same amount of product or services going out. This keeps your accounts payable costs down, but boosts your accounts receivable. Are there special services, benefits or product packages you can sell for a higher price? Customers pay on perceived value, so if they perceive they are getting more, they may well pay more.
7. Factor Some Invoices
One way to improve cash flow is to “sell” some or all of your invoices to a factoring company. It works like credit cards do. You raise an invoice, your factoring company pays you a discounted amount in a few days, and they collect the full amount from your customer in 30 days. Your cash flow is good even though you lose some profit.
There are a number of ways a small business can manage cash flow. The essential point is that you must do it all the time, not just occasionally. These 7 ways are all tried and tested. Modify them to suit your own business, and you will find they are all easy ways for a small business to manage cash flow.