Updated: September 27, 2014
In business, it’s been said that “Cash is King”.
Indeed, money in the bank helps regulate the business and provides immediate funds for unforeseen expenses.
However, maintaining a smooth cash flow is not that easy; specially if your business is growing or trying to expand.
If you don’t monitor your business cash flow, then you’re at risk of running short of cash. And you don’t want that to happen, even if there’s regular income from daily sales.
So what can you do if your accounts receivable are starting to pile up? What’s your next step when your lines of credit begin to extend unnecessarily? What can you do to ensure that your inventory doesn’t run out?
When times are tough and money is hard to get by, then these strategies and plans of action will help increase cash flow in your business.
Systematize your billing process
When you give clients payment terms longer than 30 days, it’s easy to overlook due accounts. Make sure that you have a system in place that will monitor your receivables. A simple computer spreadsheet can do, but an accounting software program with time & billing features will immensely automate the process.
Consider retainer fees for some clients
A friend of mine owns a graphic design firm which usually charges clients on a per-project basis. But for regular and long-time clients, the firm establishes a retainer fee in exchange for value-added services and discounts on the project fee. His profit margin was slightly reduced but cash flows became more predictable.
Adjust your pricing
If your business is always struggling with its cash reserve, then maybe you should consider adjusting your product and service prices. You may have failed to properly consider the rising costs and expenditure of your business. Check the market and see if your prices are competitive or just grossly cheap.
Extend your accounts payable
Talk to your suppliers if you can have longer payment terms, specially if don’t have one. Sometimes it’s just a matter of passing a few documents to their office; and you’ll get to enjoy terms of up to 30 days or more in your purchases.
Ask for early payment incentives
On the other hand, if already have sufficiently good payment terms from your suppliers, then maybe you could ask for discounts and incentives for early payments.
Change or vary suppliers
Are you sure that your supplier is still the best source for your materials. Even if they’ve been your business partner for years, it pays to always be on the look out for new and better suppliers. At the very least, you can leverage this information to get better deals from your existing suppliers.
Partner with other businesses for bulk purchases
A friend of mine runs a school and office supplies store while I have a photocopying center. Separately, our paper needs hover over moderate volumes. But placing orders together from one supplier qualifies us for better terms because our requirements add up to meet their bulk order discounts.
Manage your inventory
Don’t tie up your cash with slow-moving items. Know the turnover rates of your inventory and put more money in fast-selling goods. Again, using a simple spreadsheet can do the trick but installing an efficient inventory management software in your business will be more effective in managing your stocks.
Don’t buy equipment if the payment will greatly tie-up your cash. Consider leasing if it means getting better cash flow for the moment. Moreover, leasing office and technical equipment allows you to keep in pace with technology when new models come out. What seems to be more expensive can turn out to be a money saver in the end.
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Photo credits: Talke Photography, Mukumbura and penguincakes
An interesting business strategy, success is indeed measured on how one manage its own enterprise. Having a right business opportunity, the marketing tool and skill sure builds up a lot.
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Increasing business cash flow can be achieve if we understand the statement of cash flow from it’s operating, to investing and financing. The above post gives a comprehensive guide on how to have a positive cash flow.
Hi Sir Fitz,
I just have a few questions. With our small business, we plan to expand by inviting some family members to invest. They are abroad, and most of the tasks of managing the business will be handled by me and my husband. We’re also doing this as a way to help our family and share the blessing with them. I’ve drafted our business plan, but the challenging part is with the profit sharing. What is the ideal proportion to get as our share of the profit? and how do we exactly divide the profit and when? I hope that you could write something about this or do an online training. More power.
[…] something as critical to business success as cash flow you don’t want to wait for there to be an obvious problem to investigate. The standardized […]
[…] primary advantage of having an efficient inventory management system in place is that it helps increase your business cash flow. This occurs on top of these other […]