If you are a business owner and your sales or top line are growing at a breakneck pace and you are increasing your profits every year, you are definitely heading in the right direction. But don’t let your guard down. Even growing and profitable businesses can be affected by cash flow problems if their financial, operational and/or investment activities are not functioning effectively.
For example, if your debts (your debts) are due before your receivables (the money from a sale that you haven’t cashed in yet) arrives, you will have cash flow problems. This, in turn, means you won’t be able to pay your bills on time, which can lead to bigger problems, like timely payroll and dealing with security issues. solvency. If you want to improve your cash flow, consider implementing some of the following strategies.
Key points to remember
- Even profitable businesses can run into cash flow problems when their debts are due before they have collected enough money from sales to cover their bills.
- To control your cash flow, consider implementing new policies such as offering discounts to customers who pay early, forming a buying cooperative with other businesses, and using electronic payments for payment. bills.
- You can also negotiate better terms with your suppliers, improve your invoicing procedures and experiment with higher prices to increase your cash flow.
1. Rent, don’t buy
Since renting supplies, equipment, and real estate usually ends up costing more than buying, this might seem counter-intuitive to someone who only cares about the bottom line, or your income after reimbursement of expenses. But unless your business is brimming with cash, you’ll want to maintain cash flow for day-to-day operations.
By renting, you pay in small installments, which helps improve cash flow. An added bonus is that lease payments are a business expense and can therefore be deducted from your taxes.
2. Offer early payment discounts
Everyone loves incentives, and if you offer customers a discount if they pay their bills in advance, you create a win/win situation for both of you. Getting the money early helps your cash flow, of course.
3. Perform customer credit checks
If a customer doesn’t want to pay you cash, be sure to do a credit check, especially before you sign them up. If the customer has bad credit, you can safely assume that you won’t receive payments on time.
Even if you want to make the sale, late payments will hurt your business cash flow. If you go for a sale despite questionable credit, be sure to set it up with a high interest rate.
4. Form a buying cooperative
Think about power in numbers and find other like-minded businesses willing to pool their money in order to to bargain lower prices with suppliers, who usually give big discounts to big companies that buy in bulk.
5. Improve your inventory
Take a inventory check. Make a list of goods you buy that are not growing at the same rate as your other products. They tie up a lot of money and could hurt your cash flow.
Instead of buying more of what isn’t selling, get rid of it, even if you have to sell it at a discount. It’s hard to walk away from the products you fall in love with, hoping that one day you’ll magically see increased demand, but that almost never happens. Be objective, not emotional.
6. Send invoices immediately
You will see receivables coming in faster this way. Make sure you understand the basics of how to make a good invoice. You’ll want your invoices to be easy to read and terms clearly stated. Write the due date in a few places (preferably in bold), including at the top of the invoice and on the payment slip at the bottom. Include clear instructions regarding the types of payment accepted. If you charge late payment fees, be sure to include this information as well.
7. Use electronic payments
If you pay electronically, you can wait until the morning of the day an invoice is due. This time saving improves your cash flow. You can also use a business credit card, as some offer a grace period of up to 21 days, which can go a long way to boosting your cash flow. You might even get cash back. But don’t accumulate too much debt.
8. Pay suppliers less
If you maintain friendly and regular communication with suppliers, you’ll have a better chance of getting better terms with them. Offer suppliers advance payments if they are willing to give you a discount in return. Learn to master the art of negotiation is an essential part of doing business and could help you convince your suppliers to give you a better deal.
9. Use high interest savings accounts
This will provide you liquidity while increasing your cash position. the best high yield savings accounts offer interest rates up to 25 times higher than the national average, which means you’ll earn more on the money you’ve put aside.
10. Raise prices
Raising your prices is a concept that scares many business owners. They fear that this will lead to a drop in sales. But there’s nothing wrong with experimenting with prices to find the perfect number: how far are customers willing to go? There’s no way to know unless you take a chance.
A healthy cash flow is the result of operations that run efficiently and smoothly. While implementing any or all of the ten steps above should help increase your business cash flow, you also need to ensure that you are making the right decisions about your marketing, customer service, development of products or services and the acquisition of new customers. . This is why it is essential to review and update your business plan on a regular basis to ensure you anticipate trends and challenges before they affect your profitability.