Cash is king. How does your kingdom look?
There is truth to this famous mantra of the business world. If you have no cash, you have no stability. We’ll discuss a few tips for cash flow management to keep your business healthy.
If you haven’t already read our tips on Finding insights in your P&L or for Reading your Balance Sheet – you might consider starting there. Or, if you already have a good handle on your business finances – read on for some basic tips to get you thinking.
No time? Make some! Savings4Members business consultants work with businesses from over 100+ industry associations, co-ops, and franchises. With over 20+ savings categories to cut costs and improve margins – we’ve helped countless businesses save time, money, and stress.
Stay timely with invoicing & receipt of payments
Consider offering a discount to your customers for early payments. Make sure to send invoices in a timely manner to encourage them to pay early. Follow-up on any open invoices immediately. You want your customers to understand that you are on top of things and late accounts will not be tolerated.
Monitor your inventory levels
It is far too easy to tie up too much cash in inventory. Many companies struggle to achieve the right balance of inventory on hand and cash on hand, especially during their busy season.
Even in the midst of your busy season, you have to be responsible with inventory purchases. Look at inventory on hand, inventory on order, projected sales, and ending inventory targets to determine your purchases. You don’t want to end the year with insurmountable bills due to vendors and not enough cash in the bank to pay them.
If you have slow-moving inventory that’s been on your books for more than a year, consider selling through an outlet store, discount store, or on Amazon.
Ask for longer payment terms
It’s always worthwhile to ask your vendors for extended payment terms.
Often they’ll say no, but sometimes they will increase to net 60 or net 90. What do you have to lose?
This is especially important during your busy season, as you’ll have to ramp up inventory purchases in preparation but you won’t have the cash in the bank yet.
Anticipate future cash flows
It is necessary to map out your future cash flow projections. This is something you should be looking at on an annual basis, often looking 1, 3, and 5 years ahead. Of course there will always be surprises, but if you’ve covered your basic cash flow needs it will be easier to find the cash for those surprises as they come up.
Consider financing or leasing equipment
Rather than going out and paying a large sum of cash for a new piece of equipment, first consider financing from the bank. Financing will allow you to save that cash for other purposes.
Leasing is a great option as well. You don’t take on the risk of a big expenditure and will likely have low maintenance costs on the equipment.
If nothing else works and you need to buy, buy used equipment. Often it is just as sturdy but much, much cheaper.
Make sure you’re monitoring profitability
Review your margins on an overall basis and on a product basis. Are you seeing numbers that surprise you? Make sure to watch these weekly and monthly as well as annually to ensure nothing is out of whack.
Consider a subscription service
Yes, subscription services are trendy right now, but for good reason. They create an experience with a custom feel, people love getting mail, and you get paid upfront! Your company will see the benefit of the customer prepaying for an annual subscription. If you sell a product or service that is used monthly or on a regular basis, consider creating a subscription service.
By thinking about these tips and incorporating them into your business, your cash flow will be in great shape in no time!
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