There is no overstating the importance of cash flow to your small business, because if you have even one severe gap in cash flow, it just might be enough to scuttle your business. The same is true if you consistently have minor cash flow issues, because the cumulative effect of those shortages will eventually be enough to have you drowning in debt. Here are seven ways that you can boost cash flow, and improve your company’s chances for survival along with it.
Be aggressive with receivables
Your incoming revenue is critical to company survival, and when payments come in late or not at all, they can have a tremendous impact on your business. To boost cash flow, make sure that your customers are invoiced immediately after purchases, so there’s no lag in waiting for the next round of invoices. As soon as invoices become due, make sure that your staff personnel are manning the phones, reminding customers of their obligations.
Most small businesses cannot afford the luxury of having dead inventory laying around in a warehouse, because that’s revenue which is tied up. At times when sales are a little off and inventory is not moving, you need to pay much more attention to inventory management, and clear out unused stock. You should also be analyzing product lines, so you know which are selling and which are not, to improve your inventory management.
Establish a cash flow planner
By keeping a handle on all expected expenses and incoming revenues for the month, you should always know what your cash position is. Keep a daily record in your cash flow planner for all this, so that you always have a clear understanding of your cash flow status, and so you’ll be able to react quicker to looming problems.
Monitor financial statements
You should get in the habit of perusing your monthly financial statements on a line by line basis, so that you’re immediately aware of potential issues. You should pay extra attention to indicators of the financial health of your business, for instance inventory turnover and gross margins.
Work with customers and suppliers to your advantage
Both your customers and your suppliers can help you to boost cash flow, although they won’t be aware of that fact. You can encourage prompt payments from customers by offering discounts, which will hopefully improve incoming revenue. You can defer payments to suppliers by working with them to extend payment terms, and this will allow you to hold onto cash longer.
Let debt work for you
Don’t be afraid of going into debt, if it means protecting your working capital. When opportunities present themselves to avoid making large cash payments, you should do so. For example, it’s better to finance the purchase of that new equipment you need, than to deplete your cash reserves just to avoid a long-term payment commitment.
Streamline your operation
Profitability can usually be improved simply by taking a close look at your operations, and streamlining inefficiencies, replacing inefficient equipment, and removing bottlenecks or operational slowdowns. Some of the best ideas in this regard can come from employees who are closest to the operation, so make sure to solicit their input.
If you’d like to discuss ways to better manage your cash flow, we’d love to meet with you and hear your story. BizResults.com is about execution, getting things done, moving the needle, helping the business owner succeed. It’s always exciting to learn about the solutions and challenges business owners are facing daily, and to see how we can work together.