Cash flow is essential for smooth operations of any business, big or small. Cash flow happens through customer payments, investments, savings or interests, monetary infusion from an investor and more. A healthy cash flow indicates the business is running smoothly, while a poor cash flow could mean business is in troubled waters.
High positive cash flow allows a business to make investments essential for growth and expansion. A negative cash flow implies more money is going out than what is coming in. Since Startups and small business typically run with tighter budgets, it becomes more important to manage the cash flows well.
Despite innovative products and services, the start-ups that are not able to manage cash flows, ultimately pack their bags up. Poor management of cash flow is the most common cause of why businesses fail. Even the richest entrepreneurs can land in trouble by not managing their cash flows meticulously. Maintaining a healthy cash flow in business requires meticulously organization and planning.
Here are a few ways that can help you manage your cash flows better:
1. Cash through assets:
A start up or a new business can start setting their baseline by looking at the cash in the hand. Carefully look at the investment done in the business itself, cash currently available in the business bank account, loans received etc. If you have equipment lying around without being of any use, consider selling them off to generate some quick cash.
2. Keep a check on the expenses:
A business must assess its monthly expenses. Business expenses might include rent, mortgage, insurances, website hosting, taxes, loan payments, travel, advertising and lastly paying yourself back. You need to be objective and get proper estimates of costs. Prioritizing the expenditure is crucial and to understand what is necessary against what is “good to have” is an absolute must. Swanky offices and expensive gadgets may not be an absolute must for the business and can be parked for later when your business becomes profitable.
3. Improve the Inventory:
Keep checking the inventory, and avoid piling it up. Many times there could be goods which stop moving completely and tie up a lot of cash. Think of ways of eliminating what doesn’t sell, even if you feel invested in them. You could research on the consumer buying behavior and optimize inventory.
4. Technology Helps:
Many start ups try to manage everything by themselves including tracking, handling, making payments, keeping up with the clients and following them regularly. Managing money can be a time-consuming task. Most founders think that they can do everything by themselves and end up wasting time on non-value added activities. If you truly want a business to grow then you must make time being in the market rather than investing your time managing money alone. Cash flows can be streamlined using technology with ease. Many accounting softwares are available in the market today which can help simplify cash flows, managing the accounts, generating reports and more. Many are available in pay per use model, store the information securely in the cloud, and can help you manage cash flows seamlessly.
Alternatively, one can also hire an expert to manage such an important task. Click here to know how The Filings can help.
5. Business credit cards to favor cash flow:
Opt for cards with rewards such as points which you can use for travel or business purchases. Cards offer a cushion in trying times; business credit cards help in categorizing the purchases and make it easy to track expenses. Staying on top of the cash flow can help a business attain greater heights.
6. Keeping up to date with Invoices:
When the customers have liberal time at hand to clear the invoice, getting the payment from them on time can become tricky. Raise the invoices on time and follow up at regular intervals to ensure timely payments from each customer.
7. Deals offered for faster payments:
Leverage ways to encourage customers to pay bills timely. One way of increasing the cash flow is to offer discounts for early payments. While the offers might have an impact on the profit margin, it could encourage the customers to pay on time. For example, if the standard contract has a thirty-day term then by offering a small discount for paying within one week, can help in generating cash faster.
8. Deposit or partial payments for long projects:
Some projects might run for longer periods of time, structure the payments in a staggered way instead of one-time payment towards the end. Regular payment intervals maintained throughout the project running period ensure the cash coming in along the way.
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