Being an entrepreneur, you probably know that cash is the lifeline of your business. Your business may be earning sufficient profits in the marketplace. However, you still need adequate monetary resources to operate it efficiently. Otherwise, you are going to have a tough time paying your employees on time and clearing your suppliers’ dues.
You also find it difficult to purchase the necessary raw materials and meet essential expenses. Such problems will ultimately hamper production. This is why you need to monitor your establishment’s cashflow position at regular intervals closely. Otherwise, you could end up closing down your organization’s operations in the market and filing an application for bankruptcy. This is something you do not want at any costs.
What are the objectives of any strategy you adopt to improve cash flow?
Business experts admit maintaining a positive cash flow position is never an easy task for entrepreneurs to perform. However, they explain that owners with inadequate skills to manage money diligently can ruin their thriving businesses. You have to understand that any strategy you adopt to improve your organization’s cash flow has to achieve two main objectives. First, you need to boost sales and find new revenue streams for your business. Secondly, you need to control your expenditure at all costs.
How do you enhance your organization’s cash flow position?
Such professionals further suggest you consider the following seven important tips to improve your organization’s cash flow position:
- Review your business plan
You need to review your business plan to ensure your organization is moving in the right direction. Make it a point to go through the cash flow forecasting aspect. You need to ask yourself whether you are doing enough to monitor your business expenses. Are such costs within acceptable limits? At the same, you need to determine whether your organization is meeting its sales targets. You also need to know how long it takes for your debtors to pay up the money they owe you. This can help to determine the course of action you need to take.
- Create a contingency reserve for unforeseen expenses
The next step for you to take is to create a contingency reserve for your business. Ideally, you should keep enough cash to meet emergency expenses you need to incur. It should be equivalent to 3 months of money your organization saved in the previous year. After all, you never know when your establishment may have to face a period where business is slow. During this time, you will still have the cash to pay your employees, meet expenses and clear your creditors’ dues.
- Do not overuse your business credit card and clear all pending dues
Having an outstanding balance on your business credit card can ruin your organization’s cash flow position. Make it a point to clear all your credit card dues on time. This ensures that even if your debtors do not pay you on time, your bank still keeps a line of credit you to use. However, you should make it use it only as a last resort.
- Inventory management
This is another aspect which you should overlook in your attempts to improve your organization’s cash flow. Proficient experts from reliable business websites say holding unnecessary inventory can tie up your money. You need to spend a considerable amount of storage, rent, and insurance of such products. You have to determine what your organization needs at any point in time and purchase that quantity. If you find your establishment is holding slow-selling merchandise, sell it offer immediately by offering special discounts to your customers.
- Take a good look at your account receivables and improve invoicing
Take necessary steps to ensure your existing debtors pay you on time for the products they buy. Make it a point to revamp your organization invoicing system. As soon as they make a credit sale, raise such a bill and present it to them. You should send reminders from time to time. This is to inform them that the money they owe you is due. If it is necessary to take steps to reduce their receivable cash cycle from 60 to 30 days. Ensure they have a thorough understanding of your terms and highlight them on invoices you issue them. Offer them attractive cash discounts to encourage them to pay up soon. However, if you find some of your clients are still maintaining their slow-paying habits, penalize them with fines. If all this proves to be a tall order for you, hire a reliable factoring agency.
- Negotiate favorable terms with your suppliers
You should sit across the negotiation table with your suppliers. Ask them if they are willing to extend your payment cycle if your clear your dues on time. It gives you the opportunity to pay them off as soon as your debtors clear their outstanding amounts to you. This can go a long in easing the pressure on your cash flow position. Also, you should make it a point to avail attractive discounts they may offer if make bulk purchases from them.
- Diversify your product-line wherever necessary
If the products your organization deals with is seasonal in nature, it can affect your cash flow. You are bound to come across the time where business witness a decline in sales. In such a situation, you should consider diversifying your product line. For this, you may need to make necessary adjustments to your business plan and model you follow. If you find that the task is beyond you, it is prudent on your part to take the help of reliable professionals. They can guide you in taking the right course of action.
A positive cash flow position can help you run your organization more efficiently in the marketplace. You notice a significant growth of your establishment in this environment. It also boosts your bottom-line profits.T his can help you enhance your reputation and relationships with your business associates. However, all this is possible if you keep in mind the above seven important tips to improve your organization’s financial position. You should also think to try outside the box when it comes to generating money off your business and exploring new revenue streams.