Cash flow management is one of the most difficult parts of owning a small business. Even if your business is profitable, cash flow problems can make you feel like you’re in a never-ending cycle of feast and famine. If it seems as though money is leaving your business faster than it’s coming in, read on for seven ways to boost your cash flow and escape the financial see-saw ride.
1) Stay on Top of Your Books
We’re willing to bet that bookkeeping is not your favourite task, but it can significantly improve your cash flow. Keeping your records up-to-date helps you to identify areas for improvement and get a handle on exactly where your money is going every month. Cloud accounting software such as Xero, Quickbooks or Freshbooks can make this process infinitely easier. You can upload your receipts, keep track of your invoices and create reports or projections to help you improve your money management.
2) Reduce Outgoings
It may seem like obvious advice, but reducing your outgoings is important. Once you get a clear picture of your monthly expenditure, get creative and look for new ways to cut costs. This could be cancelling subscriptions, shopping around with utility suppliers or streamlining your workflows.
3) Equipment Leasing or Loans
Buying new equipment outright can put a serious dent in your bank balance and damage your cash flow. It may be worth considering leasing equipment or taking out an equipment loan instead. Both options are more expensive than making an outright purchase but are very helpful in terms of cash flow, so it may well be worth it.
Equipment leasing is ideal if you only need equipment for a short period of time, or if you anticipate you will soon need to upgrade it. You may also have the option to purchase the equipment at the end of the lease, giving you more time to build up the cash reserves to do so.
If you want to buy your equipment but are concerned about your cash flow, a loan could be a good option. Equipment loans function in a similar way to a traditional bank loan, but tend to be lower-risk. Rather than one big lump sum payment, you can pay for the equipment in manageable increments and you will own it once the loan is paid in full..
4) Keep an Eye on Inventory
Holding onto large amounts of stock that isn’t moving ties up your capital, so it pays to manage your stock carefully. You should only purchase stock that you know you can sell. You should also keep a careful track of expiration dates so that you can move products before they become obsolete and regularly review sales figures so that you know which stock moves quickly, and which tends to stand still.
5) Offer Discounts for Large Orders
If cash is tight, consider appealing to customers by offering attractive discounts for large orders. Not only does this create a big cash inflow that can help you to get moving again, it also helps to shift stock that may have been sitting in inventory for a while.
6) Better Invoice Management
In order to improve your cash flow, you need the money you’re owed to come in as quickly as possible. Sending invoices quickly and being diligent with payment reminders makes a big difference when it comes to getting paid on time; if you forget to chase up an invoice, you can’t blame your customers for forgetting too!
If you struggle with late-paying customers, introduce a late fee to encourage them to pay you on time. You may also want to consider offering a discount as an incentive for early payment, as this will likely speed things along.
7) Use a Business Credit Card
A business credit card should not be used for long-term borrowing, but it can be a fantastic solution for short-term cash flow issues. This allows you to smooth over any issues and borrow interest free for a short period of time. Of course, it goes almost without saying that you should manage your card responsibly and aim to pay your balance in full each month.
With a few common sense tips and carefully implemented strategies, you can boost your cash flow and ensure that your business always has enough gas in the tank to keep going. Cash is king in business and it is often worth making small concessions to profit in order to keep it flowing, for example with equipment leasing or offering discounts for early payments or large orders. When you stabilise your cash flow, you have more freedom to grow and invest, not to mention far less sleepless nights spent worrying about running out of funds.