Cash is king when it comes to the financial management of a growing business. Managing cash flow effectively requires significant planning on the part of the business owner. Sometimes, what seems like obvious ways to improve cash flow may result in the opposite.
Cash is King! The best indicator of a company’s chance to succeed over the long-term is its ability to generate and hold onto cash.
Cash flow is the life-blood of a small business, its means to get paid, pay salaries, buy supplies, and make investments in infrastructure. Owners who cannot efficiently manage their business cash flow are almost certain to fail. Those who can are able to improve nearly every aspect of their business.
Whether your business is growing or struggling, managing your cash flow effectively is absolutely essential, and for many, it’s the key to business survival. Here are few tips and solutions to help manage cash flow for SME’s and Startups;
1. Speed up the recovery of receivables.
If you got paid for sales the instant you made them, you would never have a cash flow problem. Unfortunately, that doesn’t happen, but you can still improve your cash flow by managing your receivables. The basic idea is to improve the speed with which you turn materials and supplies into products, inventory into receivables, and receivables into cash. Here are three (3) specific techniques for doing this:
- Issue invoices promptly and follow up immediately if payments are slow in coming.
- Offer discounts to customers who pay their bills rapidly.
- Ask customers to make deposit payments at the time orders are taken.
Also, make it as easy as possible for your customers to pay you. For example, you can use an online invoicing solution that allows you to accept payment using a credit card. Check out how you can do this using our innovative invoicing software.
2. Ensure long-term and adequate business financing.
Avoid surprises. There is nothing more difficult or disheartening than searching for cash when you’re desperate. Not having enough capital required to finance a business to pose a great threat to the survival of a business in the long run. Hence, it is important to ensure that you have enough capital required to finance the business over a period of time (whether the business becomes profitable or not). Here are three (3) tips to ensuring you have an adequate financing for your business;
- Draw up a budget based on your business plan
- Work out how much financing you require and when you will need it
- Allow for some contingency funding to cover unexpected problems
It’s always best to begin improving cash flow through “organic” means, which refers to generating more cash from sales and using less cash in pay for your expenses. Sometimes, however, your business reaches a point where despite having done everything possible to maximise the cash from your operations, it still isn’t enough. At that point, it’s time to consider outside funding as a way to improve your cash position.
3. Shrink and Minimise Cash Outflows.
The best way to control cash outflow is to stay on top of your expenses. When we start making profits, we often tend to ignore the cost-cutting opportunities. Unmanaged cash outflow could be a silent business killer. The combination of cutting or avoiding expenses overall and delaying payment as long as possible reduces demands on cash. Strategies to reduce cost include the following:
- Review all business expenses, even the little ones.
- Cut off all unnecessary expenses that increase outflows.
- Always seek for an alternative before considering spending cash.
4. Liquidate cash tied up with assets & excess inventory.
Do you have equipment you no longer use or inventory that’s becoming obsolete? Consider selling it to generate quick cash. Idle, obsolete, and non-working equipment takes up space and ties up capital which might be used more productively.
Excess inventory can quickly become obsolete and worthless as customer requirements change and new materials are introduced. Consider selling any inventory which is unlikely to be used over the next 12 months unless the costs to retain it are minimal and the proceeds from a sale would be negligible.
Follow us on Twitter or visit our Facebook page for more resources to grow your business online.