When it comes to business finances, one of the areas that tends to have the most impact is an organization’s cash flow. Worrying about finding enough cash available to pay bills and staff members is a common problem for many business owners, and indeed, lack of cash flow is regularly one of the why many businesses (both established and new) fail each year.
Luckily, there are many different ways that you can take charge of the finances in your organization. Apart from utilizing free top tools for small businesses, like Zoho and Wave, and finding ways to increase sales, there are three important things you can do to improve your business cash flow today and reduce your stress at the same time. Read on for the rundown on each.
Track Your Position and Cut Costs
The only real way you will ever get on top of cash flow issues is if you actually know what position your business is in at all times. As a result, it’s incredibly important to continually track your company’s incomings and outgoings. In particular you should keep a close eye on expenses, and try to cut costs in as many areas as possible.
While you may not think it will make much of a difference, even cutting back on small but regular expenses can help your cash flow significantly. Think about trying to save money around the office or warehouse in as many areas as you can. For example, look at lowering energy consumption; reducing spending on unnecessary items; and buying goods on special or at wholesale pricing where possible. You should also consider whether you really need to rent your current premises, or if you can move to a lower-priced option instead.
Keep a Close Eye on Inventory
Inventory is an area where many business owners and managers overspend. Often entrepreneurs and their team end up keeping too many items, or too much of an item, on hand, and then find themselves with slow-moving or expired stock that just wastes money. This can lead to big issues with cash flow.
To help you get back on track, start examining your current inventory reserves to see what old stock can be moved in order to free up cash reserves for items that will sell more quickly. Analyze sales history to work out what doesn’t move much and, once that stock has been sold off, do not purchase it again (or if you must, only in very low quantities). Similarly, your research should also indicate which items are fast-moving and which should therefore be kept in stock at all times so as to not miss out on sales.
Another helpful tactic is to try to pre-sell as many of your goods and services as possible. By getting customers to pre-order items you not only will be able to test out the demand for new products, but also won’t end up being stuck with things that you thought would sell well but just weren’t popular. Offering advance purchases also gives you the chance to generate some additional cash flow quickly, without having to outlay money on inventory before you have it.
Update Payment Terms
Lastly, something that can really make or break your business cash flow is your payment terms. If you continually have a lot of customers who are in arrears on their bills, your cash flow will suffer significantly. The best way to stop this from happening is to put strict payment terms in place.
Firstly, make it a rule that new clients must pay upfront for purchases for their first order at a minimum, or better yet, their first three or more purchases. They should then only be converted to 30-day terms or other payment plans if they can show that they have a proven credit history, with referees supplied.
From there, all current customers should be made to pay for outstanding invoices before they are allowed to place new orders. Clients can be encouraged to pay on time too if you offer them some incentives. For example, you might provide a 5 percent discount for all bills that are paid before the due date, or offer other benefits such as discounted shipping rates, or bonus goods or services for prompt payments.
It is also worthwhile speaking to your own suppliers to see if you can get better payment terms put in place for your purchases. If you can negotiate things like longer payment terms (e.g. 60- or 90-day payments instead of 30-days), free shipping on all orders, or discounts for repeat orders, you will quickly freely up much-needed cash flow.