Tips for Better Managing Business Cash Flow
When you read about the reasons why businesses fail, an issue that pops up time and time again is not having enough cash flow. Indeed, for most entrepreneurs, trying to manage cash flow is one of the biggest pain points in their business, and something that causes a huge amount of stress.
Regardless of whether you have a start-up or a rapidly growing business, cash flow is something you need to manage carefully. To help with this, read on for some tips you can follow today to keep your venture’s cash reserves stocked up.
Closely Watch Spending and Deposits
One of the simplest yet most effective things you can do is closely watch your company’s spending and the deposits that come in. After all, there’s no way to get cash healthier if you aren’t aware of how your finances are tracking to begin with. You need to know what typical expenses and deposits are each month, so you have a clear understanding of your venture’s current, and likely future, financial position.
After analyzing this information, you’ll be able to clearly see which areas are draining cash reserves the most. Then, you can look for ways to cut costs. In addition, you might notice that certain days of the week, month or year yield more sales, so be sure to take advantage of this as much as possible. Plus, by noticing cash-flow patterns, you will be better equipped to plan for the future, and you won’t run out of money at quiet times of the year.
Make it Easier and Safer for Customers to Pay You
Your cash flow will be negatively affected if your customers take too long to pay you. To correct this, use strategies that incentivize clients to pay on time. For example, always invoice people as soon as a product or service has been supplied since the longer you wait to charge people, the longer they’ll think they have to pay you.
In addition, each of your bills should clearly show the due date and payment terms for the invoice, in large font, in a prominent place, so people don’t have to go searching for information to make payment. Also avoid giving payment terms to anyone with a bad payment history and send out regular reminders once bills become overdue.
Make sure you also give customers numerous payment options. These days, people don’t want to be restricted to just cash or check transactions; instead, install EMV terminals to allow people to pay by credit or debit card and options such as PayPal, direct deposit and gift vouchers.
Have Less Money Tied Up in Inventory
Since many businesses end up with a significant part of their cash flow tied up in inventory, another top thing to do is look for ways to reduce the amount you hold in stock. You don’t want to have too many products or parts sitting in your warehouse gathering dust. This stops you from having more cash to put into popular items as well as into marketing avenues and other growth strategies.
To reduce inventory stockpiles, you need to analyze the sales history of every item you have. Discount things which haven’t been moving, and ensure you don’t order them again. Try to move goods which are damaged or getting close to their use-by dates, too.
You should also examine your stock reserves every month, or at a minimum every quarter, to know what’s moving and what isn’t. There are plenty of helpful software tools available to make inventory management easier, so take advantage of them.
As for buying new products, talk to your suppliers to see if you can return items if they don’t sell within a certain timeframe. This will reduce your risk yet still enable you to try new lines. You might also consider setting up pre-order systems. By doing this, you can tell customers about potential new products and let them place orders in advance. Once you have enough transactions to justify a purchase, you can order items from suppliers. This allows you to test demand without outlaying any money upfront.
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