Use these suggestions to keep more money coming into your business than going out
Cash flow is a serious issue for entrepreneurs and can be a source of significant personal stress.
There is plenty of advice on how to improve your business cash flow but not all of it will be applicable to your situation. In many cases your business may only require a cash-flow tune-up in one of the following areas.
1. Speed up receivables
How quickly your customers pay and how you manage outstanding invoices is one of the biggest factors determining the strength of your cash flow. Have you let this area of cash flow management slip? Try any of these tactics to get your money quickly:
- Ask for payment upfront.
- Accept credit cards. There are plenty of options online, and most accounting software features a payments option.
- Invoice right away, with short payment terms. Ask for payment in 10 days instead of 30.
- Stay on top of receivables. Make it a habit to check the age of your receivables daily so you can take action.
2. Stretch payables
Did you know your cash flow is affected by how you pay your bills, when you pay them and how much you owe your suppliers? Keep more money in your business for longer periods of time by:
- Negotiating a longer payment period with your suppliers.
- Asking for a discount from your suppliers if you pay quickly (if you have excess cash).
- Paying a portion of an invoice and the balance in 30 or 60 days.
- Using a credit card to pay bills. When used wisely, credits cards can provide an effective short-term interest-free loan that can ease a temporary cash flow crunch.
3. Improve inventory management
If you think your problems are inventory-related it may be time to evaluate your current inventory management system.
- How often is your inventory turning over? You may need to adjust prices and/or reduce future orders.
- Are you running out of best-selling items? It deprives your business of cash from sales.
- Get rid of stale inventory. Hold a sale to move old inventory so you can invest in stock that turns over more frequently.
Accounting software can make inventory management easier, so you might want to consider investing in an affordable program.
4. Make a cash flow strategy
Don’t have a plan to manage your cash flow? You may not have any cash flow issues at the moment, but without a cash flow strategy to help keep you on track you could run into problems in the future.
Search online for a free cash flow forecast template and take the time to fill it in. Update it weekly or monthly. A cash flow template will let you see how much money is coming in from all sources and how much money is flowing out to pay various expenses. It will let you see how much cash surplus or shortage your business may encounter in any given week or month. By completing a cash flow forecast you’ll be in a position today to spot future cash flow problems so you can take corrective action.
Insufficient cash flow can kill any small business. Make it your personal responsibility to actively monitor cash flow so you can avoid a money crisis and plan ahead with confidence.