Posted on: 11 April 2017
Small business owners often struggle with cash flow. Keeping the money coming in and going out at a pace that they can handle is vital for any business, but it's something that tiny businesses often find challenging. If you want to improve your cash flow, here are 4 steps to success.
Price Things Right. Simply selling goods or services doesn't help generate sufficient cash if you're not making a profit on them. Instead, analyze the costs of your products to determine if they are priced correctly to cover not only the cost of each good sold, but also to cover the overhead of running your business. Get rid of underperforming or aging inventory that doesn't contribute heartily to the bottom line. Determining the costs of things like variable overhead may be complex, so you may benefit from working with a professional experienced in business accounting for this part.
Manage Receivables. There are several ways to improve cash flow in your accounts receivables. For example, you may want to request deposits for larger jobs, particularly if you won't be finalizing them within a month. In addition, be sure you're running credit checks for large orders to weed out customers who are less likely to pay on time. Invoice adjustments like reducing the standard terms of payment and offering discounts for early or on-time payment are passive ways to improve. When customers go over their allotted terms, make sure you or your A/R employee send a reminder (or call to make one).
Manage Payables. Controlling your payables is something you can accomplish in-house to improve cash flow without bothering customers. Try to ensure that any bills offering discounts are paid in time to receive those discounts. Use aging reports in your accounting software to budget for payments due on a regular schedule. Develop a good relationship with vendors so that when you need to delay payments, a good rapport is already in place. If you have trouble with paying on time, consider using a company credit card to make many purchases, so you can avoid having many individual payments due.
Prepare for Shortfalls. Even if you accomplish the first three items, you're still occasionally run short on cash. To help cover these times, it's good to arrange for a way to fill gaps when necessary. Look for a provider of business cash advance programs, which provide money up front borrowed against your receivables or credit card processing accounts. These types of short-term loans bridge the (often unexpected) remaining gaps in your cash flow, so be sure to develop a partnership with a provider before you need to call on them for help.
Improving in any of these areas can help you keep the outflow of money in your business from being larger than the intake of money. And this will undoubtedly improve your bottom line and make your life a little less stressful. Talk to a lender, like Fordham Capital, for more help.Share