When it comes to running a business, cash is king.
Being financially stable puts you in a position to succeed since it enables you to manage your operations seamlessly, pay for monthly expenses with no delays, and make big purchases to improve processes without breaking the bank. With that said, it is not an exaggeration to say that your cashflow serves as your company’s lifeblood.
Knowing how to manage your finances properly is the first step to ensuring business continuity at optimal levels.
Unfortunately, many entrepreneurs lack the necessary competencies to navigate tricky financial situations and eventually fall victim to shortages. Cashflow issues are incredibly lethal, considering that 82 percent of businesses fail because of lack of cash.
Luckily enough, financial problems can be solved as long as you have a comprehensive strategy in place. If your company has trouble attaining cash flow during the off-season, learning new ways to increase income and minimize expenses will enable you to stay afloat.
To help you out, let’s discuss six cashflow options that can help your business.
1. Accelerate your receivables
Customers who make late payments can be a massive headache. Apart from giving you difficulties in auditing, income that doesn’t arrive on time will cause operational bottlenecks and get in the way of your daily transactions.
While not all your customers pay up the instant you close a sale, you can improve the speed at which they settle their balances.
- Sending invoices early will remind your partners to pay as soon as possible.
- Diversifying your payment options will give your customers an easier time purchasing from your brand.
- Offering discounts and incentives to clients who pay within a particular time before the deadline will motivate them to pay quickly.
- Allowing installments or down payment will give more flexibility to customers who can’t make payments in full.
As you reflect on which methods can best accelerate your receivables, you should also build the habit of reviewing pending accounts regularly. Creating a database or purchasing accounting software will help you point out who owes you what.
2. Establish your credit lines
At first, applying for a loan may seem very intimidating. Considering that debt is something that you do not want to accumulate, this feeling is understandable. However, you should also be aware that seeking the services of a credit institution can be the easiest way out of your financial dilemma.
In case you end up having a cash shortage, one good way to get money flowing into your business again is to have multiple credit lines ready. Applying for a business loan can give you a ton of breathing room whenever you need to purchase, undergo repairs, or settle a hefty obligation.
On the other hand, getting a credit card will be useful whenever you are dealing with smaller and frequent transactions.
Before you officially sign a contract, make sure to read the fine print and collect as many options as possible. Other than comparing interest rates, understanding each lender’s payment terms and associated fees will help you find the best partner available.
Just make sure to improve your credit score to increase your chances of getting approved.
3. Keep buffer money ready
If your company is lucky enough to continue running despite the pandemic, don’t make the mistake of taking things lightly. No company is free from risk, and there may come a time that you’ll have to face another business-threatening emergency.
Considering that crises such as COVID-19 are virtually unpredictable, having buffer money ready will help you manage through challenging periods.
Financial experts recommend that a person’s emergency account should have at least three to six months’ worth of his/her monthly income. Apart from being a safety net, this fund can give you extra money during a big project.
4. Negotiate with your vendors
One good way to improve your cash flow is to make adjustments to your supply chain.
When communicating with your business partners or clients, it is best, to be honest when you are discussing the company’s current financial standing. A particular vendor that has been working with you for quite some time may even empathize with your situation and offer better prices.
Finding a middle ground will ensure that no side ends up with the short end of the stick. Clearly defining your set payment terms and remittance period will help you settle obligations smoothly. Not to mention that a fair agreement is also the best way to build rapport.
After you put your agreement in writing, take advantage of your terms to minimize outflow. If your supplier requires you to pay on the 60th day, then pay at the last second!
5. Open a business savings account
Many entrepreneurs tend to mix up their personal and business accounts.
Having all your finances in one place may sound utterly convenient, but when loads of transactions compile, you’ll have a hard time tracking things. Down the line, you may end up using money from your pocket to shoulder business transactions and vice versa.
The simplest way to avoid this problem is to open up a separate savings account. Apart from helping you organize your finances, you can generate a little extra cash by harnessing the power of compound interest.
If you are planning to get a credit card, always remember that the same principles should also apply.
6. Review your operating expenses
Getting more money and better deals don’t always guarantee a positive cash flow. As you manage your company over time, you’ll notice that your financial standing will greatly depend on how well you can reduce your expenses.
If you don’t want to bleed out any excess cash, then you’ll need to review your operations and fix costly inconsistencies.
To start things off, you need to take a look at your cash flow statement. After you point out which areas are taking the biggest hit on your budget, ask yourself, “Are these expenses necessary?”
If you can run your business efficiently without relying on certain equipment, software, and utilities, then selling or letting them go will give you some extra funds to spend.
At the same time, it is also important to streamline your business processes. If your machinery isn’t as working as well as it used to, not making an upgrade will be consequential in several ways. Now that we live in a high-pressure and fast-paced world, delays in production and defective items can take a significant toll on your income.
While it may cost much, the upfront payment of replacements will be a lot cheaper than the small inconsistencies that can build up through the years. When searching for alternatives, being financially smart with installments will give you the most convenience when purchasing.
Takeaways: Cashflow options to help your business
Many entrepreneurs are fortunate enough to generate large sums of income; however, there are only a select few that can enjoy true success.
Due to cash problems and the lack of management skills, many profitable companies still fail to maximize returns and end up walking a financial tightrope.
If you want to grow your business or continue running it, then you’ll need to take on a proactive approach to your cashflow. With these six cashflow options in mind, it will be much easier for you to stay competitive in your industry.
Ralph is the Head of Product for Earlypay, an invoice finance platform. Having been in the industry for many years now, he writes content that aims to help small businesses grow.
