Small business owners are experiencing lots of problems every day – providing services or products cost-efficiently, increasing sales, satisfying unhappy customers, and motivating dissatisfied employees – and they quickly observe that most of those issues can be fixed with cash. Cash flow is the lifeline of any business, it means to pay salaries, purchase inventory or supplies, and make investments in infrastructure. Business owners who are unable to ensure effective cash flow management are almost certain to fail. Those who can are able to improve almost every part of their business.
Many small business owners make mistakes on the subject of their cash flow management, such as over forecasting sales, not keeping track of bills, inability to allocate resources effectively throughout its startup phase, and not making plans in advance. Here are 6 powerful ways you can follow to ensure positive cash flow management.
- Anticipate Your Future Business Requirements
There’s nothing more intimidating or difficult than looking for cash while you’re despairing. To start with, you need to maintain accurate account records as they are important to knowing your business’ financial status. Use your cash flow statements and previous monthly income as well as your balance sheet to estimate available cash and project likely results for the next 3-6 months. These statements can help aware you before any losses, providing you time to organize for them before they arise.
- Connect with Your Lenders
The chances of being able to borrow cash or attract investors to put more money to your business when you absolutely need it are low. Traditional lenders are least interested in lending to a business in despairing conditions considering the fact that their first objective is to be paid back. So it is advised to build connections with lenders before the need arise.
- Keep Your Cash in a Working Mode
Keep your cash balances in interest-earnings accounts, which are available at most banks. In some instances, you might possibly experience a minimum balance requirement. But, since interest rates on those accounts are often lower as compared to the ones of savings accounts, certificate of deposit, or money marketplace accounts.
- Inform Your Customers
As a small business owner, your objective is to collect payments on your services or products before or shortly after incurring the rate of manufacturing or delivering them. The best results is to get payments upon delivering the product or service, but that is not frequently feasible. Invoice your customers the day you ship your product with the note that “the payment is expected on invoice receipt.” Additionally add a note that interests are charged for all payments in a month and the recovery process will be initiated.
- Work with Your Vendors
Just as you need your customers to pay you, your vendors want you to clear your payments as soon as possible. Paying early to your vendors can ruin your cash flow. Therefore, it is advised to delay your payment as long as you can. In case there is no penalty for late payments, organize a pay cycle of 45 to 60 days from receipt of an invoice.
- Capitalize on the Cash Inflows
There are lots of methods to ensure effective cash flow management, particularly if you sell usual products or engage in lengthy contracts. Need safety deposits equal to almost half of the order in case the product or service is unusually hefty, complicated, or unique. In case you work with contracts, set up the payment schedules as well as amounts that are equal or surpass your lose costs.