How to manage (and maximise) cash flow for your small business
If you’re in business then you need to maximise cash flow, period. Having a solid understanding of your cash flow situation can help you uncover opportunities to help improve the running of your business.
Follow these useful tips to help you manage your cash flow and generate the maximum amount of cash in the shortest possible time.
Plan for growth
If you have a cash flow problem then simply growing your business may not necessarily be the solution. Some business owners achieve their goal of growing their business only to find they have increased their cash flow problems in the process. Plan for growth and the related cash outlays in advance so they don’t come as a surprise later.
Make it work for you
When it comes to trading terms agree on extended payment terms wherever possible, pay monthly and electronically if you can. Using credit terms is a great way to manage the flow of cash within your own business as you get the goods immediately but you don’t have to pay until the end of the month.
Encourage customers who owe you money to pay promptly by offering a discount. While this can have an impact on your profit margin, it will increase cash flow and make it easier to manage. Your company can also take advantage of this with suppliers and others that you owe, but be careful that your early payments of debt don’t leave you with a cash flow shortfall.
Tighten your credit requirements
Before you extend credit to customers find out if they will be able to pay their bills on time. Ask them to fill out a credit application and check to see if they have references. A safer bet may be to simply accept credit cards instead. Consider extending credit only to customers with accounts.
Increasing customers is essential to growing your business, but it can take time and money to convert prospects into sales. Selling more to existing customers is cheaper and you may be able to do this by looking at what they’re buying and why – info that can help increase your profit margin and generate more cash. But be careful, increasing sales could see you increasing your accounts receivables and not actual cash if the sales are on credit.
Use company credit
Reduce the number of small accounts demanding attention by using corporate procurement/purchasing cards. These allow small purchases to be made efficiently and provide you with a period of credit.
Want to know more?