Cash flow management is a challenge, and wrong planning makes it worse. Due to this, small business owners struggle a lot because they don’t have the proper guidance. If the cash flow is positive, then it means you are good to go. But if the ratio is negative, it is undoubtedly bad news, and you need to work on this. According to the stats of US banks, more than 82% of businesses fail due to poor cash management. Before starting to plan anything, you should get accurate information. So, we start with the following:
What is Cash Flow and Point to Explain Its Importance?
Cash flow is the total amount of cash that is moving in and out of your business at one time. However, if the cash flow is positive, you are doing fine and adding an amount to your cash reserve. But if the flow is negative, it means your funds are in bad condition. So, if your cash flow remains negative, you will have to add the amount for months in reserve. However, you can check the cash flow by going through the monthly statement. Mainly there are two sides of cash flow:
The inflow side represents income, while the outflow indicates payments. So, we aim to maintain a balance between both sides. We can say that it’s a most important statement that you shouldn’t skip to keep the business in good condition. Furthermore, you can take help from:
- Balance sheet
- Profit & loss statement
- And income statement
If your cash flow is exemplary, you indeed work on the improvement. But don’t ever confuse cash flow with profits.
Importance of Maintaining Cash Flow:
You can’t move on with the marketing if your cash flow isn’t doing well. In short, it’s vital, and the following points prove this:
- If cash flow is well, then you can invest in new products and business ventures
- You can pay suppliers and vendors on time, and good-paying terms help you get discounted prices.
- Moreover, you can handle emergencies reasonably.
- If the cash flow is positive, you can easily manage operating expenses even if the payments are delayed from the customer’s side.
So, you can indeed adopt efforts to maximize cash flow that later helps to increase profit and meet targets on time. The only thing you need is an action plan.
Seven Ways for Small Businesses to Improve Cash Flow:
If you are struggling to improve cash, then we got you. Here are the top tips that will surely help bring a positive balance to the statement.
Get Things on Lease Instead of Buying:
If you are more on the buying side, it will be hard to maintain cash flow. However, leasing supplies, buildings, and properties are generally more expensive than buying. But it’s different in the case of preserving cash flow. In leasing, you don’t need to make a one-time payment that performs best when it comes to improving cash flow. Above all, lease payment is a business expense, and you can write it off while filling out a 1099 pay stub for independent contractors. It’s a win-win situation for both parties in both cases.
Encourage Early Payments:
If you encourage early payments, it’s an excellent option for suppliers and businesses. Moreover, you have the option of offering discounts to the customers who are making early payments. As a result, people become loyal customers and prefer you for future business. Above all, the most significant advantage of earlier payments is to keep the cash flow positive. So, try not to deal in credit because this isn’t good for your business.
Keep a Check on Invoice Management:
Invoice management acts like lifeblood for small businesses. So, after giving or receiving payment, don’t skip keeping the record in the form of an invoice. Apart from this, maintain a separate book to keep a record of all invoices. It will help to keep track of all receivables and payables. For instance, if you are paying off salaries, use pay stub creator to keep things organized and straightforward. Later you can save these documents in the cloud as a permanent record.
Keep an Eye on Competitors:
Pricing is the main factor that determines the profit and loss ratio. If you are playing solo in the market, you can set any price you want. But if there are competitors, keep an eye and increase costs with them. Here are the main questions that you need to ask yourself:
- What is the price range that my competitors are charging?
- What should be the staff limit that you require for inventory management?
- Why are your prices low?
The main aim of asking all these questions is to check prices, profit, and expenses. So, always set competitive prices and fairly pay off your hard work.
Equalize Payable and Receivables:
A best cash flow statement is one that knows how to create equilibrium on the receivables and payables side. So, look at the payment terms of your suppliers and customers. For instance, if you make payment after 45 days, then ensure that you are also receiving money in this time frame. If you don’t do this, you are creating a hap that will ultimately impact the cash flow statement balance. However, the best trick is to match the supplier terms of payments with customers. Moreover, it is helpful to charge a penalty for late fees.
Include New Sale Channels:
If you have multiple sale channels, then in this way, you can increase the number of customers. For instance, if you are selling physically, consider including online methods. Apart from this, you can adopt different techniques like margin or commission selling then it will surely add more customers. Moreover, try adding collaborative relationships with suppliers, vendors, and distributors. So, opening new sales channels requires investment, so don’t forget to research before taking any action.
Always Buy in Bulk:
Businesses earn profits that buy in bulk. In this way, you can offer discounts to customers. So, with your creative thinking, you can enjoy significant discounts on materials and supplies. Thus, partner with the people who can offer you value and, in the end, share profitability with all partners. In this way, everyone’s cash flow improves, and you can stay on the safe side. The only need is to remain efficient and keep both sides (inflow & outflow) equal. Above all, upgrade your techniques and machinery according to advanced levels.