Improve My Cash Flow
One of the most important considerations for any entrepreneur’s business is cash management. Without cash, it’s impossible to cover loan payments or pay staff, and it can make for some sleepless nights.
There is no quick fix for cash flow problems, however by implementing a few strategic changes, you should be able to see some light at the end of the tunnel.
- Manage your inventory – Where your business involves inventory, inventory management is essential to maintain proper cash flow. Less cash tied up in inventory invariably results in better cash flow.In general, the nature of your business will dictate your inventory requirements. It is
important to know your market and products to ensure that your business maintains the optimum levels of inventory at all times. You will want to ensure that you have enough items in inventory to meet demand, but not too many so that your working capital is all tied up in inventory.
- Prepare a good forecast – Anticipating cash flow needs in important especially when a business is growing. For example, when introducing a new product line a business may require more staff, equipment and real estate. All costs that will be incurred prior to the new sales being generated.
Additional financing may be required to cover the shortfall in the interim.
- Evaluate your terms – The best policy when it comes to cash flow management for any type of business is to collect your receivables as soon as possible. This may be achieved by providing an enticement, such as an early payment discount to your customers. In some instances a business may also factor their receivables (i.e. sell the receivable to another company at a discount, but receive payment immediately).
- Deposit payments promptly – The sooner you make deposits, the sooner you can put the money to work for your business. This speeds up your cash flow and makes funds available for daily expenses.
- Enforce payment discipline – A good collection process will be the difference to consistently getting paid on time or being forced to make that awkward phone because the receivable has become overdue. By continuously following up you can limit any damage from overdue payments and pay your own expenses in a timely manner. Use your own payment discipline as an example as to how quickly you repay suppliers which will give you access to discounts and offers that aren’t available when you are consistently behind.
- Make it a company-wide priority – Make sure all of your employees understand that improving cash flow is a priority. Remember that your employees will be motivated by the targets you set for them.
- Get help – Spend your time doing what you do best (running your business) and leave the bookkeeping and business finances to the professionals.
For more tips on how to get your cash flow under control, call your local Crowe MacKay office.
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