With cash in the bank, you can pay yourself and grow your business. Unfortunately in the small business environment cash flow constraints are always present. But how do you improve the cash flow of your business? Luckily there are a few measures you can take to ensure cash flows move from negative to positive.
A few key ideas to consider:
Below are key ideas to improve the cash flow of your business. Not all ideas set out below may be relevant to your business, but there should be a few that you can pick from to implement.
Evaluate your business expenses:
The importance of regularly evaluating your business expenses is underestimated. This should be done regularly and can easily be tracked with a cloud accounting package at the tips of your fingers. The real key is whether the cost being incurred is really necessary. Cut out the cost and focus on running your business a little leaner to improve cash flow.
Renegotiate payment terms with your suppliers
There are basically two considerations here. Firstly, move payment terms out further so that you collect on debtors first, before having to pay suppliers. Alternatively, negotiate settlement discounts with suppliers for early payment.
Manage your inventory
It is very easy to invest too much into stock and have all your cash tied up if the stock is not moving. You should be in a position to track your stock movement very closely and to know which stock is not selling. So make sure you only carry the stock you really need and liquidate old and slow-moving stock as soon as possible.
Consider a sale and leaseback
If you own an asset and need money to invest on other profitable projects, consider selling the asset and leasing it back.
Collect on your debtors
Make sure you invoice debtors immediately. It is unnecessary to wait until the end of the month, rather, shorten the invoicing cycle to ensure you invoice your customers more regularly within shorter intervals. Also offer a slight discount for early settlement of invoices. Stay on top of outstanding invoices to make sure they are collected and that they don’t slip through the cracks. Consider raising interest on late invoices so as to discourage late payments or a late payment penalty.
Consider invoice factoring
Invoice factoring is the process of selling your unpaid invoices to a company in exchange for immediate cash. The factoring company takes a small cut of the money you earn, but the benefit to you is that you receive your money upfront.
Keep a rolling cash flow forecast
Make sure you understand the cash flow needs of your business. Know exactly how much you are going to get in and what you need to pay. Be on top of this at least weekly.
Outsource certain business functions
IT, human resources, accounting, payroll, and marketing are all functions you can outsource. Evaluate your business needs to establish where you can save unnecessary costs.
Understanding the cash flow needs of your business is tantamount to the success of your venture. Without the necessary tools and measures, you will continually struggle to stay afloat and won’t understand your cash flow requirements.
If you would like a professional to guide you in implementing the necessary measures to improve your cash flow, get in touch with us.