When you start up a new business, there are numerous things to settle as assets and infrastructure of the business. This requires a regular cash flow improvement into the business, regardless of the niche and nature of the business. If the cash flow out is more than cash-flow-in in your business, it will be unable to meet the basic expenses and might collapse completely one day. Would you like such situation to occur, certainly ‘NO’?
However, every problem has a solution and when we talk about cash flow; we should act wisely from the very beginning and before it becomes a problem we should have a solution for it. Simply follow these cash flow improvement ideas and apply them to your every day’s cash flow. You will find a difference and always have cash in your hands to meet urgent expenses.
- Be aware of the books
Most of the time, the problem of deficient cash occurs when the business owners are unable to keep a proper track record of their cash going out and coming in. It’s very important to check and record the payments and cash receipts on a regular basis and develop a habit of checking the accounts payable and receivables on the weekly basis. When such habit is developed, the owner will automatically come to know that what all, small or big expenses are about to occur in advance only, which will ultimately result in a smooth cash flow. Don’t mess up with the work above if you don’t have enough knowledge and time for it, simply hire a bookkeeper who will reconcile all the books for you every month.
- Send proper and timely invoices to your customers
Once you’ve rendered your services or products to the customers, it is also important to send them the invoice on time, this helps to get paid on proper time. As soon as your products or services are delivered to the customers, make a habit of preparing the invoice and deliver it to them as soon as possible. Check out all the sales orders every fortnight to make sure that all the bills are sent on time and nothing is pending.
- Develop a firm receivable process
The payments coming from the customers are not always smooth and timely. You need to track the amount of money owned by your business and also find an alternative method of expenses when the payments coming are not on time. Create a proper timeline for the accounts receivable procedure so that if you don’t receive the payments you can call up the collection agencies.
- Cut off the unwanted expenses
A very conventional and effective method to save bucks drop by drop. Review all your expenses occurring in your business and see what all is unnecessary and can be removed completely. You will find many such expenses which are totally useless, just cut them off or adjust them. Talk to the vendors for the expenses which cannot be eliminated to change the payment date so that the cash-flow-in date is in accordance with you.
- Offer multiple payment options to customers
One effective method of getting paid on time is to provide your customers with several payment options. You should consider payments through checks, debit cards or credit cards. If you are able to provide an online payment option, it would be great for your business cash flow.
- Demand for Partial payments
When you work on a project basis you can very promptly ask for an advance payment before starting the project. Also after completion of each milestone, you can demand another snippet of payment. This way your customer can avoid the burden of bulk payment at the end of the project.
- Limit the inventory
If your business involves inventory, you should review an internal accounting of each products lying in the stock very often. To manage your inventory more effectively, checkout the products which are slow moving (which do not sell quickly), keep a smaller stock of such products and store more of those products which sell quickly. Keeping inventory needs cash, storage space in the form of shelf, floor etc. You can also announce sales or reduced prize days to sell the slow-selling inventory.
- Use comfortable payment terms
Another very effective way of improving the cash flow is to negotiate with customers and suppliers to decrease the collection days and increase the payment days. It means that you can negotiate with the customers to pay within 15-20 days while you pay your suppliers in 30 days or more. If you are able to apply this payment strategy effectively, you will be able to maintain a smooth cash flow in your business.
- Take help of LOC
In spite of all the positive measures taken for enhancement of cash flow, a time can come when you will need cash, may be for an emergency. For such situations, Line of Credit (LOC) will be acting as a quick source of cash. Many financial organizations not only provide business credit card but also the line of credit against the business assets (equipment, furniture, inventory etc) as the guarantee. You just need to be in the good books of your financial organization and maintain a good relation with them. This will ensure a safe LOC from them which you can use for your business.
- Try to predict and plan up future investment
It’s just not possible to predict the future of any business investment, but yes few assumptions can be made where you have made some major expenditure. Like for instance if you are planning to replace the furniture at your office shortly, make sure that you are setting aside funds to meet that expense in advance. An emergency fund can also be kept aside for using it in any urgent situation.
With the tips above you can keep your business cash flow smooth and also handle an emergency situation. If you have some more tips to maintain smooth business cash flow, please share with us in the comments below.
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