Last updated on July 5th, 2022 at 11:24 am
Proper cash flow management is crucial to the success of every business. But it may take time for managers to master the skills needed to ensure a positive cash balance. Startups may also find it one of their most challenging tasks.
Experience, the right approach, and strategic decisions are the main elements in maintaining robust financial health. There are several elements to consider, including your sales, expenses, inventory, and enterprise type. In cases where you might need a financial boost, consider availing of working capital funding for your business.
As an entrepreneur or manager, it’s not enough to gain financial literacy. Getting your financials in order is more critical to the success and viability of your business. Below are some strategies you can adopt to ensure better cash flow handling.
- Study Your Cash Flow
Determine what could be causing the problem by reviewing your business’ cash inflow and outflow. Watch where your money goes and how your business is earning. For an accurate view of the situation, review the invoices you’ve sent and those paid for by the customers. Also, check the invoices forwarded to you and those paid for by your company. Scrutinize all the entries and see if the calculations are correct.
Hiring bookkeepers and accountants is an even better option for keeping track of your financial records. If you’re based in Pennsylvania, start by searching for accountant in Philadelphia and see how their services can help.
By studying your financial records, you could find your breakeven point and trace problems that need to be addressed.
- Review Your Payment Terms And Collection Cycles
Some business financials may look good on paper. Your accounting books may indicate you’ve made a considerable number of sales booked for the month. However, your cash flow will continue to be problematic unless these supposed earnings are sent to your accounts and cash registers.
Compare your payment terms and accounts receivable to understand what may be causing cash flow issues. Check whether your payment policy is too lax in handling late payments if you have one. If such is the case, establish stricter collection processes and remind your customers of their payment schedules. Be more assertive in following up on delayed payments and consider imposing late payment fees on your clients.
Study whether you need to make some changes or adjust your collection periods to increase the amount of cash in your hands. In some cases, adding payment options online can help improve your collections.
If your employees are open to the idea and it’s not against the labor laws in your country, think about adjusting your staff’s salary cycle. Explain your cash flow problem to your employees and assure them that the situation is temporary, and they’ll receive their salaries as they used to as your condition stabilizes.
- Negotiate With Your Suppliers And Lenders
Reserve cash payments only to suppliers and vendors that impose high interests and other fees. For instance, business credit loans may impose hefty costs for late payments, so make sure you prioritize them. Also, consider whether your utility bills can be paid at a later time, as long as you keep the due date in mind.
Depending on your relationship with the lending company, it may be possible to negotiate for late payments or have the additional fees waived. Try to discuss a possible payment restructuring plan with lenders, perhaps by extending the payment terms, to lower your monthly payment costs. Do the same with your suppliers and vendors and devise a good solution. If it doesn’t fall through, look for another vendor that can provide your business with a better deal.
- Set Aside Some Cash
A good rule of thumb for startups is to expect the first few months to be financially challenging. Setting a certain amount of cash to tide you through tricky times is brilliant. Additionally, your business’s financial plan section shall have projections on when you will make money and how.
Regardless, a cash reserve of about six months can help tide you through difficult times. In the meantime, work doubly hard to attract new clients and close transactions successfully. And it doesn’t hurt to reduce recurring expenses such as electricity bills and fuel.
- Manage Your Inventory Well
No business is perfect, and uncertainty makes running a business extra challenging. Don’t expect that the products flying off the shelves today can sustain their popularity for months. Hence, you may end up purchasing too many stocks of items that no longer appeal to consumers. That said, you have to convert these products into cash.
Consider selling these non-moving commodities at low prices to yield returns as fast as possible. Moreover, refrain from buying more items and only best-selling order products to avoid further hurting your financial situation.
- Minimize Expenses
Keeping business costs to a minimum is one of the critical steps in managing cash flow problems. Adjust your expenditure on non-essential items and rely on digital transactions to save on electricity, paper, and printing costs. Additionally, practice route optimization or consider hiring other modes of transport, such as bicycles.
You’d have to hold off buying specific pieces of business equipment in these situations. Instead of buying, it may be wiser to rent facilities instead. Doing so can free up some of your cash that is otherwise tied to these business assets.
- Increase The Prices Of Your Products And Services
Besides striving to increase your sales, consider raising the costs of your products and services. This move isn’t a quick solution, and the price changes mustn’t be too drastic, as you’ll likely lose your customers and discourage potential clients—especially if they have cheaper and better options elsewhere.
Before implementing a price hike, conduct a survey or launch a marketing campaign conveying such information. Ensure that your prices are within the bounds of your competitors’ rates and offer added value to your clients, so they don’t turn to other businesses.
If introducing price increases will further harm your cash flow problem, consider offering bundled services or products so clients can pay more and get more value from the money they’re handing over to your business.
Concluding Thoughts
Understandably, startups may overlook some of these financial challenges in the early stages. Over time, their understanding of the impacts of internal and external economic cycles will improve, allowing them to project cash flow better.
Proper cash flow management is vital to every business’s success. Adequate preparation, review, and an accurate projection can help your company tide through the storm. Additionally, the abovementioned techniques can help steer your business in the right direction.
