Maintaining a positive cash flow is the key to running a healthy and successful business. This means that there should be more money coming into your company than going out. Besides that, staying on top of your company’s cash flow also means you get to make better decisions and plans for your business and ensure that every penny is going to where they are supposed to.
Also, did you know that a positive cash flow helps you protect business relationships? It allows you to have the funds to pay your vendors and suppliers on time and avoid overdue bills that can damage your overall reputation. Curious how you can improve your cash flow management? Let’s explore the crucial actions you can take.
Review your cash flow cycle
First thing you need to look into is your company’s cash-flow cycle. According to experienced accountants, understanding the cash-flow cycle involves knowing where your company’s cash is going and what happened to your cash on the previous month. You can have a better idea of these by regularly reviewing and updating your profit and loss statements and balance sheets. Doing so will make it easier for you to correct inconsistencies in your cash-flow cycle, from collecting payments in advance to paying your vendors later.
Increase your margins
Want to have the ability to spin-off more cash for operations? Then you should focus on increasing your company’s margins. Some companies do this by decreasing the costs for product delivery or increasing the delivery charges. As for others, raising rates on high demand products and services is a more profitable option.
This is also a better choice if you have a unique offering that isn’t available to your competitors. But of course, you should also work on producing higher-end products along the way to assure consistent higher profits. What’s more, be certain that you have an incredible teal that supports this goal and is willing to rave about your offers, helping you acquire more new customers into your business. Other things you should take into account are taking cash discounts from vendors, protecting profit, and double-checking supplier bills.
Work with an accounting firm
Focusing on your company’s cash flow is usually challenging when you have other important business tasks to handle or you lack financial knowledge. This is where hiring a reliable accounting firm comes in. Generally, accounting experts or firms provide services such as bookkeeping, audit and assurance, advisory and consultancy, and tax. So apart from helping you track your company expenses, they can guarantee organized accounting systems for fruitful business growth.
Seeking the help of these professionals can also help protect your company’s reputation when it comes to cultivating strong relations with different financial institutions. When choosing an accounting firm, consider factors such as business specialties, fees, level of service, availability, and of course, track record.
Always try to negotiate
Next thing you can do is to try negotiating your accounts payable and accounts receivable. For instance, you can try asking your suppliers if it’s okay to pay for the materials a week or two after you got them. This won’t be much of a problem if you have a good relationship with your suppliers. After all, it can take you weeks to actually transform those raw materials into saleable products. As for your accounts receivable with customers, always try to negotiate for earlier payment. Did your customer buy a huge order and requested a 60-day payment term? Try negotiating for at least a 40-day term. Or, you can help them pay you faster by invoicing promptly, knowing their preferred payment method, and creating neat invoices.
Maintain a financial cushion
It’s a good habit for any company to have a financial cushion that could save them from various cash flow problems. Typically in savings form, it’s a general tip to have at least three to six months of savings to cover business expenses. Financial planners suggest determining the comfort level for your company and starting small. You can better inform your savings plan through your cash flow forecast. Moreover, don’t ignore your business line of credit as this is also a great source of cash reserves. You can use it as a safety next during a cash flow crisis or utilize it for funding big purchases.
Indeed, a good management of business cash flow can offer numerous advantages for the company. It gives you the cash to grow and expand from hiring new staff members to entering new markets. And the truth is, cash flow management does not have to be a grievous concern. Take smarter steps toward positive cash flow now by considering these tips.