For your business, “cash is king”. This makes cash flow a critical component of your success. Attempting to run a profitable business without the appropriate cash-flow management process in place is a difficult feat. If your company starts spending more than it makes and there is no record of this happening, you’re looking at a cash flow problem that needs immediate addressing.
Careful cash flow management will allow you to pre-empt the amount of cash available at any point in time as well as help evaluate potential shortfalls and surpluses. You will also be able to project trends in cash inflow and cash outflow to avoid extended cash shortages. Although this is advised for all businesses, it is most important for small businesses like plumbing, contracting and service companies in general in order for them to be able to sustainable. Here are a few tips to help improve and maintain a healthy cash flow management for your business.
Identify the point at which your business breaks even
A path is always clearer with the end goal in mind. If you are well aware of the point at which your business will become profitable, it gives you a target for estimating the future of your cash flow. For existing businesses, start by getting rid of old and outdated inventory wherever possible to start afresh and employ the use of technologically advanced tools to help keep your records accessible and secure.
Maintain adequate reserves
Just like life, businesses go through ups and downs. It is always advisable to have spare cash reserves to help navigate through the shortfalls. And if you’re just starting a business, ensuring a sufficient capital makes it easier to focus on cash flow and lessen the stress about shortfalls.
Collect receivables on time
Receivables are what customers and clients owe you, and these need to be accounted for meticulously. There are numerous ways to help speed up the receipt and processing of receivables. You can delegate the task of keeping a track of receivables to an employee who has a knack for being firm and persistent. This would also help with periodically following up with your customers to collect payment in a timely manner.
Incentivise your customers to pay up faster
Sometimes customers may be late with dues owing to financial troubles. You can try offering discounts to such customers to increase their chances of paying their dues promptly. Although this may affect profit margins, it will help manage your cash flow by establishing your business as one that incentivises customers to make payments before you have to penalise them with late dues.
Think outside the box when it comes to boosting sales
The obvious answer to increase cash flow is to up the sales, which in reality is easier said than done. You can make attempts to acquire new customers instead of trying to increase sales within the existing customer base. Research shows that by accumulating the right data, you may be able to pre-empt your customer’s needs. This will help you target their requirements and thus increase sales that might even lead to profit.
Even if you’re not an expert at managing money, managing your business’ cash flow doesn’t have to be rocket science. With these simple tips, you should be on your way to cash flow positive sooner than you think.
