Cash flow plays a very important role for business owners. Especially the ones who have just begun or entrepreneurs into their start-ups. It is a life-blood of an organization. Businesses have a host of different problems every day such as product cost, service cost, meeting sales target, customers complaints, dissatisfied employee, etc. However, effectively managing the cash flow will result in streamlining every area of your business.
Converting potential call into sales and then to cash is the ultimate strategy of any business. Also, it is beneficial to have a certain cash-crunch-fund readily available in case of any business emergency. This habit proves to be the essence of long-term growth and success.
- Keep Future Surplus Ready
One has to specifically keep tab of current and past income, expenditure, cash flow statements, financial standings and balance sheet to give a probable financial projection for the next 3 to 6 months. This management system and format will help and alarm you of any shortcomings and hence, gives you time to prepare for the said cash adversity.
- Better Link With Lenders
It’s hard to draw money from investors especially when your business is at low. Bankers and private lenders are least interested to fund in as they are almost looking to get paid back rather than a fund in more money. It is advisable to build relations in advance rather than to seek it in the nick of time. Banking and other financial institutions offer secured loans on such assets. Loans can be availed in different ways such as ‘Account Receivable Financing’ which is the most obvious corporate loan for a business. Moreover, Inventory and Equipment are the other two ways to opt for business loans.
- Let Cash Generate Cash
Playing smart with your cash is the best plan of action you can take with your existing funds available. You can do this by opting for interest-earning accounts which offer more interest as compared to simple savings accounts, Certificates of Deposits (CD), Fixed Deposits (FDs) or money markets accounts. Try to avoid taking FD as it will block your fund for the specific period of time opted and withdrawing early in case of emergency will attract additional charges to do so.
- Spread Awareness
Let your customers know primarily that the payment is immediately due upon producing or delivery of items or services. Do not proactively suggest them about the option of paying later, instead educate them about the advantages of paying on time so as to build credit and avail discounts, offers or any benefits for paying on time. Include a letter suggesting that interest will incur for all payments received later than 30 days. Clearly outlay the policy regarding late payments and as a kind reminder keep spreading the word about it.
- Collaborate With Vendors
As much as it is important for you to get paid by your customers, the same applies to your vendors as they would also want their payment to be cleared as soon as possible. See what is the penalty for late payments and if it is there then try to adhere within that time frame and if it is none then set a pay cycle of 45 to 60 days from the receipt of an invoice. Simultaneously it is also important to maintain a good credit rating and business relations with vendors. Try to adhere to all payments as promised and only delay the payment as long as you are being consistent with the payment and sales terms.
- Maximize Cash Inflows
It is also beneficial to increase cash inflow in different ways especially if you are offering to sell custom products or services then you can modify the contracts accordingly. If your customers require any modification in the standard products or services then you can demand extra payment through fees and other charges. Small and medium businesses who provide timely services should consider subscription sales in order to secure payments from customers in advance which is also a good way to cover your future costs.
- Minimize Cash Outflows
In order to maintain easy cash trade within the company, the best step further is to cut down on unnecessary expense and reduce outgoing cash flow payments as much as possible. You could save on equipment and instead of replacing it, it’s better to get it to repair. Sometimes even buying used equipment can help you bring down office cost.
Since Cash is King for small business owners, you need an invoicing system in place which maintains a positive cash flow on accounts receivable and accounts payable.
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