Take control of your cash flow
The cash flow of a business is what keeps it afloat. Cash flow is composed of cash coming in and going out, inventory, accounts payable, accounts receivable, debt, and capital expenditures. Understanding your cash flow thoroughly is crucial for a business' success. However, this is something that not all first-time business owners pick up right away.
If your cash flow is not aplenty, it can have devastating effects on your business. This could mean the inability to pay your vendors and affect your day-to-day operations, or could mean a delay in employees' paychecks and affect the morale of the culture.
Problems with cash flow might come out of the blue, or a business owner might have seen them coming but didn't know how to prevent it. The good news is, it is possible to prepare for cash flow problems.
1. Seek financing for the lows. While some business owners may not think of a business line of credit initially, it can provide benefits and extra cash when you're in a tight spot. A credit line can provide reserve when you're in a low spot, allowing you to get to your next period of an accelerated cash flow. Having the money set aside for when it's needed can provide you peace of mind when the cash starts to fizzle out.
2. Collect funds quicker. Getting quicker access to funds can happen in two ways - by encouraging quick payments or offering a variety of payment methods to provide convenience for your customers. You cannot control when customers send their payments, however, you can offer incentives for quick turnaround or even paying with cash upfront versus paying with card or at a later date. Offering a variety of payment methods for your customers is another way to ensure you receive your funds quicker. From point of sale to telephone-based processing, ensure you have the tools you need to accept payments, so you can focus on growing your business.
3. Boost sales with current customers. One obvious way to increase your cash flow is to increase your sales. Sounds easy, right? Save the time and effort of reaching out to new prospects and focus on those customers that are already coming through your doors. This could be in the form of a customer event, special loyalty discounts, VIP clubs, contests or sweepstakes, and referral programs.
4. Reduce your overhead costs. A short-term fix for a lull in your cash flow is to lower your expenses. It's important to analyze the full picture of funds leaving your business to determine what you can cut that would have the smallest impact on your day-to-day operations. How much are you spending on storing inventory? What expenses are associated with your location or building? How many employees would you like to have versus how many employees do you need to keep your customers happy?
5. Utilize electronic payments. Having consistent control of payments to vendors is a great way for you to manage gate keeping when it comes to your business' cash flow. Setting up automatic payments will enable you to make a payment closer to the day it is due, without the risk or worry that it will slip your mind. Keeping cash on hand for as long as you reasonably can, will give you more time to manage it until it comes time for payments to be made or money to be earned.
As a business owner, your business' cash flow is one of the most critical aspects to understand, especially when first starting out. By having a good idea of how to properly manage it, you will be able to spend more time with customers and employees than trying to determine how to pay expenses amidst a slow cash flow period.
The information provided in these articles is intended for informational purposes only. It is not to be construed as the opinion of Central Bancompany, Inc., and/or its affiliates and does not imply endorsement or support of any of the mentioned information, products, services, or providers. All information presented is without any representation, guaranty, or warranty regarding the accuracy, relevance, or completeness of the information.