There are a lot of challenges you have to deal with when running a small business. From manufacturing products in a cost-effective manner, to increasing sales through promotion, to managing customers, small businesses always have a lot on their plate.
Most of these challenges can be made significantly easier by having more cash on hand, and the process by which a business keeps itself supplied with cash is called cash flow management in accounting circles. Business owners who cannot manage the cash flow of their business are almost guaranteed to fail, whereas those who do it well will see a high return on investment. Small businesses are prone to making cash flow management mistakes. They make unrealistic sales forecasts, fail to keep track of bills, allocate resources incorrectly, and in general act without a plan in mind.
As a general rule, a good cash flow can be accomplished by converting sales into cash as rapidly as possible, while taking measures to extend your payments. This makes cash flow management the key for sustained, long-term growth. To find out more on how to improve your cash flow management skills, take a look at our list of five expert-certified tips.
Delay your business expenses
One of the chief means of improving cash flow is to delay your business’s expenses. There are various strategies that you can employ to accomplish this, depending on the line of business your company is in. For example, manufacturers might opt to use cheaper input materials when creating their products, or delay re-filling their inventory until it has been completely exhausted. A service-based company, on the other hand, may decide to devote less time to each order. There are also some strategies that work irrespective of your company’s line of business, such as hiring part-time employees or volunteers in place of full-timers.
Ask vendors for more favorable payment terms
Vendors live and die by their clients, which means they have a strong incentive to help finance their customer’s purchases. Having an extra week or two to meet a deadline for a payment can make the difference between missing payroll and expanding. So for example, if your payments generally specify 15 days, try asking for 30 days instead. If you go an extra mile to better your relationship with vendors, you will find that some of them are going to be willing to negotiate a more favorable arrangement. Just make sure to be persistent when trying to do this. Even if your request for more favorable payments gets declined, things might change in the future.
Liquidate excess equipment
The rapid pace of modern technological development means that new and improved equipment is constantly flooding the market. Businesses that wish to remain ahead of the curve are then driven to purchase new tech, but this usually leaves them with older equipment that is just lying around, collecting dust. A better use for idle equipment would be to sell it for cash or lease it to another company that can actually put it to use. Another instance where selling equipment can be used to improve cash flow is when specific tools are only used on special occasions. Such equipment can easily be rented out if there is a need for it, and the proceeds from its sale can be used to finance some other parts of your business operation.
Distribute your workload
Cash flow management is a time-sensitive affair. If a company takes it upon themselves to do a year’s worth of work in one month, they are bound to become overwhelmed, and likely fail. On the other hand, if a company fails to do enough work on a monthly basis, they will end up shutting their doors sooner rather than later. Therefore it is imperative that businesses adequately distribute their workload, as this will make cash flow managing much easier. In some instances, this may entail turning down work opportunities during certain periods of the year, or taking up additional work if the season is right for it.
Pick the right bank account
The success of your cash flow management efforts is highly dependent on the financial support services that you use. Your choice of bank is the most important factor in this regard. Different banks offer different kinds of accounts, and it is up to you as a business owner to find the ones that are in line with your financial plan. A business transaction account allows companies to deposit and withdraw cash with ATM cards, electronic debit cards and checks. A business savings account gives companies the option to accrue interest. A business term deposit may be used by companies to deposit a part of their assets for a period of time to earn a guaranteed return.
Having a positive cash flow is vital to small business success. As the saying goes, “Cash is king” in the world of business, and the more of it you can accrue on a regular basis, the better off your business will be in the long run. Cash flow management is vital for achieving this goal, and we hope that our short primer on the topic can help you become more proficient at it.
(Featured image by DepositPhotos)
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
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