Every businessperson, especially small-scale owners, dreams of expanding their business one day and making it to the top. But staying away from the red line is far more important than that. To avoid that, most smart owners always keep their eyes on their business by monitoring their weekly or monthly cash flow statements. These reports will give you an idea on how much money is flowing in or out of your business.
Cash flow shortages usually happen when your account payables (debts) are due before your account receivables (money from sales to be collected). According to experts, around 80% of businesses plunge into crisis because of cash flow issues.
Moreover, shortages could trigger some problems such as not having enough money for payroll, other important operating expenses, or your business’s untimely demise. Well, one must not root for the latter to happen. Here are comprehensive ways to ensure a positive cash flow all year round:
- Speed Up Your Receivables
Traditionally, most businesses use checks to pay other businesses to avoid withdrawing cash, and because it’s easy. But checks often take the slow path. You may accelerate your receivables by doing the following:
- Offer Alternative Payment Methods: Offer your clients convenient payment options such as credit cards, mobile, and other electronic payment methods.
- Offer Discounts For Early Payments: Everyone loves getting incentives and promos. By giving discounts, clients may pay their bills ahead of time, maintaining cash flow within your business.
- Send Your Invoices As Early As Possible: Early bird catches the worm. Rather than sending all invoices on one particular date, it’s best to send them as soon as the product or services are delivered.
- Focus On Past Due Accounts: Audit all accounts receivable for past due clients and start calling them one by one. You may ask for partial payment if they’re struggling. Remember, every cent counts, especially in a crisis.
It’s best to adapt fully automated transactions for faster revenue recognition to lessen manual processes.
- Borrow Cash If Needed
Having debt doesn’t equate to a failing business. Most businesses take loans to start or expand their businesses. Borrowing money may also help you deal with cash flow problems. But make sure you understand the terms and conditions regarding the interest rates, and make sure you have considered all other possible options.
Moreover, check if your business has possible innate problems. If so, your loans would not solve the problem, but may only act as a temporary solution which may worsen the problem in the future.
If you’re planning to start a business, you may also consider having a small business cash advance.
- Turn Assets Into Cash
Audit your equipment and check if they’re still useful. Consider selling them to avoid or to help improve cash flow issues. Moreover, instead of buying, consider leasing equipment. This helps you maintain the cash stream from daily operations. And may lessen business tax since lease payments are considered as a company expense.
- Reduce Expenses
It’s best to assess every single penny that flows out of your account and be most critical of it during a cash flow crisis. Whether in crisis or not, always prioritize only the most important expenses. Only consider expenses that may help you generate additional revenue and keep your operations going. Otherwise, eliminate them from the top of your priorities.
- Monitor And Track Spending
Monitoring the allocation of funds may help your business avoid an unlikely crisis. This will help prevent overspending and misuse of funds. You may use multiple accounts to monitor your company’s spending. Just make sure you know which account is for saving and which is for spending.
Moreover, you may use business cards to cover minimal expenses. Again, keep an eye on this. If you’re not observant enough, you may be shocked by the bill you aren’t prepared for.
You can also track your expenses using software or cloud to stay regularly on top of your cash wherever you are.
- Separate Business From Own Funds
Since bank statements are used in tracking and monitoring spending, separating personal funds would be critical to your fund management. Moreover, mixed bank records will only yield to disorganized records and may further lead to overspending, resulting in cash flow crisis.
The Bottom Line
Healthy cash flow is the key to one’s business success. Not only can it make your business run efficiently and smoothly, but it can also help you maintain positive relationships with your suppliers and clients.
While maximizing the strategies above, you should also determine if you’re making the right decisions about your marketing strategies, product development, or customer service. Don’t let a few cash problems put your company in jeopardy.