Cash Flow Crash Course: Eight ways to improve your cash flow!
82% of businesses fail due to problems with their cash flow. Here’s how to not be one of them!
What is cash flow?
Cash flow is how money moves in to and out of your business over a certain period of time. Cash spent is a cash outflow from your business. Cash earned is a cash inflow to your business. At the end of a period, you’d like to see positive cash flows to show that you’re more than covering your expenses.
A cash flow statement separates your cash flows into three different categories: operations, investing, and financing. Cash flow from operating expenses means the cash you receive and pay out in a certain period for ordinary business activities. Cash flow from investment refers to cash earned or spent related to investing activities. Lastly, cash flow from financing includes cash raised or paid out from transactions with debt, equity, or dividends.
Here are eight ways to improve your cash flow today:
1. Negotiate the time period of your payment terms with your vendors. Instead of having invoices due on delivery, develop a relationship with your vendors to see if you can pay 30 or 60 days from receipt.
2. Shop around for deals on service contracts. If your current providers aren’t open to negotiating their prices, consider shopping competitors for better deals on the same services.
3. Set up automatic reminders to follow up on unpaid invoices. Looking at your A/R Aging report each month can help you see which customers still owe you money.
4. Implement a late payment fee policy.
5. Incentivize early payments from your customers with a discount. Offer a small discount for customers that pay for your products or services up front.
6. Evaluate whether it’s time to raise your prices. Whether it’s been years since you raised your prices, you’re operating at full capacity, or you’re simply offering more value, increasing your prices can help increase your cash flow.
7. Cut out unnecessary expenses. Whether it’s a recurring subscription you forgot about or an unused office space, do an audit of your expenses.
8. Put any unused cash to work. If you have cash sitting around, consider moving it into an interest- bearing savings account.
In conclusion, managing cash flow effectively is essential for the success and sustainability of a business. A positive cash flow allows a company to reinvest in its operations, pay its obligations on time, and seize growth opportunities. On the other hand, negative cash flow can lead to financial difficulties, such as defaulting on loans, bankruptcy, and even closure.
Therefore, business owners and managers should prioritize monitoring and forecasting cash flow, implementing strategies to increase cash inflows, and reducing cash outflows. This includes managing accounts receivable and payable, controlling expenses, optimizing inventory, and seeking additional sources of funding when necessary. By maintaining a healthy cash flow, businesses can maintain financial stability and achieve long-term success.
