Ways to Improve Your Business Cash Flow- It's Necessary!
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Every business at one point or another is going to experience a slowdown, those economic downturns that make us feel as though we're literally strapped for cash. These are the critical moments when your company needs to take a deep breath, see exactly where it stands and makes the necessary adjustments. Perhaps you have to initiate some cuts, reassess where the money is being spent, think about what is absolutely essential versus that which you can live without.
Some choices may be tougher than others, but as the business owner, unfortunately, making those hard decisions is your job. One of the ways to help bolster a sagging business is to improve cash flow. In this article, we offer a few ideas of how you can do precisely that!
Understanding Cash Flow
Simply put, your company's cash flow is the sum total of the cash that flows into and out of the business over a certain period of time. If more money is coming in than going out, then you've achieved a positive cash flow. In any business's cash flow statement, there will be a general overview of the company's financial health. The components of such a statement include: operating cash flow, investing cash flow and financing cash flow. If your assets are on the rise and you indeed have positive cash flow then this enables you to more easily cover operating costs, pay your debts, pay shareholders and just, in general, continue along more smoothly.
But what if the assets aren't on the rise, then what should you do? Below are a few proven cash flow management strategies that could just help you realize a significant improvement.
Depending on your industry, you may need some major equipment to get going or even for upgrade purposes. Buying such expensive pieces outright can certainly impact your cash flow. To the point, where it could be a matter of years before you fully recover from the loss of this money. Here is where it may make sense to go the leasing route—smaller, incremental payments, that still get you the equipment you need and yet aren't causing you to exhaust company funds. Leasing is a great tool for businesses just starting out especially, and then once you get more established you can look into other financing means.
Run Customer Credit Checks
One of the biggest hits to company cash flow is when clients fail to pay their bills. Especially with those bigger invoices, if they delay or even default on the payment, this could put a great deal of pressure on your financial health. By running a credit check—while not guaranteed—you do get some peace of mind as far as understanding what type of financial situation a customer is in; plus, you get a snapshot of how well they handle their debts.
There are just some products that sell better than others. You may have invested a lot of thought, energy, not to mention money into a certain item, but if it's not selling, is it really worth it? This may mean liquidating those products that simply don't make the grade.
Cash flow could be quickly gobbled up if you continue to dump a lot of the company money into a non-starter. Remember, you have to make the tough choices, and this might entail letting go of a product you love.
Send Out Those Invoices Quickly
One way to ensure the faster receipt of payment is to get those invoices sent out ASAP. Generally speaking, within a 24 hour period is the smartest way to go. It remains fresh in the client's mind and they are thus more apt to get that payment remitted. There are actually a ton of services and platforms that can help expedite the invoicing process. Gone are the days of manually sending and tracking invoices. Turnkey invoicing services could definitely help you stay on top of payments.
Is Your Pricing Strategy On Point?
Whether too low or potentially too high, having the wrong prices on products could spell disaster for your business. Take some time to research the industry, look at what competitors are doing. Is your pricing where it needs to be? It may be time for a pricing shift—whether lowering a bit to stay competitive and move items off the shelf, or even bumping undervalued product prices up.
Have a Grasp on Your Data
One of the ways to better understand where your company's financial health stands and subsequently what you may need to do as far as improving cash flow is to have a handle on all available data. Numerous products exist to help you track and manage your sales and expenses. Gaining a comprehensive big picture view of your cash flow is absolutely essential for any business. Cash flow management tools to include Pulse and Float have helped revolutionize how companies approach to cash flow management.
Don't Be Shy: Make That Call
Yes, we live in the age of email, but sometimes there is a lot to be said for actually picking up the phone and making that important call. If a client is slow to pay—call them. This even works in trying to negotiate for instance with a supplier. Maybe you need to work out a payment plan during times of slower cash flow. Calling is a far more personal and effective way to approach this.
Where Are Your Deposits Going?
Hopefully, you're taking advantage of the many interest-earning businesses checking accounts out there. Compare rates—are you maximizing what you get? If you do decide to deposit into something with a higher rate, keep in mind that you want to ensure that the cash is still liquid.
The Importance of Positive Cash Flow
If you do need to start finding ways to tighten the belt and bring in more money than you seem to be bleeding out, you should consider trying some (or all/) of the above. Improving your cash flow position is imperative for the longevity and sustainability of your company. And not just for the day to day items—what if something unexpected arises, what if a crisis occurs? You want to be prepared and not leave yourself in a giant hole.
Among some of the most impacting strategies: pricing properly, positioning yourself more competitively, being able to identify inventory that works and those items which don't. As your company grows, your cash flow position should as well thus leaving you poised for future success.