Cash flow is an important aspect of every business. So it is important to know that bad cash flow management can lead to businesses going belly up. But it is not only businesses on struggle street that can have cash flow problems. In fact, quite often it is that growing business’s when moving into their next growth spurt that often experience cash flow problems. So, if you want to boost and improve your business cash flow then check out these 6 steps that will surely get you on your way!!
This sounds fairly basic but is easier said than done. Every business has its ups and downs, which could be seasonal or over a few years. And as the saying goes, it’s good to make hay while the sun shines as bumper periods can often be followed by a slump. So save all that extra profit for a rainy day.
It might be hard to resist buying that new car when the business is doing well but make sure that you can maintain all current and future obligations before spending that cash on something that might not add value to the business or help its bottom line and inevitably improve business cash flow.
An alternative to buying assets could be to finance them with a lease, HP or Chattel Mortgage. Albeit this might be a more expensive alternative to buying the asset, but not having to fork out large lump sums of cash in favor of monthly installments will ensure you spread the cost out over a wider period.
This is key to business with inventory as ‘inventory is cash’ which also equates to business cashflow. If your business cannot sell its stock quick enough you may not be able to fund your payments to your creditors and this is going to cause your business considerable stress.
Understand what stock items are the best sellers and sell down slow-moving stock for a discount if necessary to get the cash. This exercise should be a regular process.
Collecting on debts from customers quickly will greatly improve business cash flow. Offering customers easy ways to pay and maybe a few incentives for early/prompt payments might help boost that cash flow!
Suppliers credit in Interest-Free so either stretch the time to pay them or negotiate to pay your creditors early with a settlement discount. But remember building good relationships with creditors will give you the ability to negotiate better deals on prices and exclusive deals.
For most purchases in our personal lives, we try to get the best possible deal. It should be the same with our business. Are your phone or electricity bills too high? Have you checked the deals offered by your supplier’s competitor? Sometimes a simple phone call might go a long way to help your business reduce costs and improve cash flow.
By Adam Martin, Accountant
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