If you are a business owner and your top line or sales are growing at a break-neck speed, leading to increased profits every year, you are moving in the right direction. However, do not get too comfortable. Even profitable and growing companies may face cash flow problems if your investing, operations, or finance activities do not run efficiently.
For example, if you have payables that are due before your receivables come in, you may begin facing cash flow issues. Now is the time to learn how to handle these problems, how to manage receivables, and avoid cash flow issues now and down the road.
Do Not Buy, Lease
When you lease supplies, real estate, and equipment, it will likely wind up being more expensive than buying something outright. As a result, this may seem counterintuitive to someone who is only watching their business’s bottom line or income after expenses have been paid. However, unless a company is flush, it is necessary to maintain a cash stream for daily operations.
By choosing to lease, payments are made in small increments, which helps to improve total cash flow. An additional bonus is that when someone chooses to lease, it is considered a business expense. This means it can be written off on the person’s taxes.
Give Customers Discounts for Paying Early
Discounts and incentives are appealing to virtually any customer. If someone offers their customer a discount and they pay ahead of time, it is a win-win situation. Also, getting the money in early helps the business’s cash flow.
Conduct Credit Checks On All Customers
If a business has a customer that does not want to pay in cash, be sure to invest in a credit check. This is particularly important before signing them up for services. If the client does not have good credit, it is safe to assume they will not make their payments on time, either.
While making the sale may be the main source of motivation, late payments will hurt the business’s cash flow. If someone decides to make the sale to a customer with questionable credit, make sure to add on a higher interest rate.
Create a Buying Cooperative
It is a good idea to think of power in numbers. Try to find other like-minded businesses that are willing to pool their cash to get better prices with vendors and suppliers. Many companies provide discounts to larger firms that can buy in bulk. By creating a cooperative, this is possible for smaller businesses, too.
Take time to conduct an inventory check. Create a list of the items that have been purchased that are not moving at the same speed as other items. These may tie up a lot of cash and may hurt a business’s cash flow.
Rather than buying more of something that is not selling, eliminate it – even if it needs to be sold for a lower price. It is hard to abandon a product in some cases, especially if there is hope that demand will increase. However, this rarely happens. Try to be objective in business, rather than emotional.
Send Invoices Right Away
Receivables come in faster when this is done. Be sure to understand the right way to create an invoice and ensure they are clear and concise, so customers understand them. Print the due date in several locations (in bold if possible), including at the top of the invoice, on the payment slip at the bottom, and somewhere near the “amount due.” Include clear and easy-to-understand instructions regarding the payment types that are accepted, too. If a business charges late payment fees, be sure the information is included on the invoice.
Use Electronic Payment Options
If your business accepts electronic payments, customers can wait until the day the payment is due to make it. This method can help to improve cash flow for the business. It is also possible to offer a business credit card to creditworthy clients and offer a grace period of up to 21 days. This can also help increase cash flow for a business.
Negotiate Fees with Suppliers
If you can maintain friendly and regular communication with your suppliers, you have a much better chance of landing more appealing terms. Consider offering your suppliers early payments if they are willing to provide you with a discount. When you can master the art of negotiation, you can get your suppliers to provide you with a much better deal, which will benefit your business and bottom line.
Open a High-Interest Savings Account
These accounts offer liquidity, all while helping to grow your cash position. The highest quality, high-yield savings accounts provide interest rates that are up to 25 times higher than the current national average. This means that you can earn more money on the money that you have put away.
Increase Your Prices
At first, the idea of increasing your prices may be scary. This is common for many business owners. The concern is that higher prices will reduce sales. However, it is smart to experiment with pricing to find the right number. Find out how willing your customers will go. You will never know unless you will take a chance.
Making the Right Decisions for Your Business’s Long-Term Cash Flow
Achieving healthy cash flow results from a business that runs smoothly and efficiently. While implementing some or several of the steps above, you can increase your business’s cash flow. It is important to make sure you make smart decisions regarding your product and service development, customer service, marketing, new customer acquisition, and more. You should take the time to review and update your business plan regularly. Doing this will help you anticipate new trends and challenges before your profitability is impacted.
Are You Making the Right Decisions?
It is easy to make mistakes when it comes to your business. In fact, mistakes are a huge part of owning a business. The key is to learn from the mistakes made and ensure you take steps to minimize the likelihood of them happening again.
Remember, there are many factors that will impact your business’s cash flow. If you want to help ensure your business remains “in the black” and avoid cash-flow issues now and in the future, keeping the tips and information above in mind is a must. By taking the time to learn what you can do to improve your cash flow, you can minimize business financial issues and make the most of the cash you have. Being informed is the best way to make the most of your business’s capital and use it for growth and continued success.