Cash is king in the business world. Even the most profitable businesses will struggle if they have poor cash flow operations. However, everyone has expenses and needs to make investments in future growth. So, how can you make sure you have enough cash on hand to keep things running smoothly without missing out on opportunities? These six strategies should help.
1) Get a Line of Credit
A line of credit can help you to pay for expenses even when your cash inflow is reduced. For example, if you have slower sales for a month, you may be worried about keeping up with your expenses. This could harm your ability to invest in other projects. In the worst-case scenario, slow sales may even cause you to miss some bills. In other words, it would be bad for your cash flow.Fortunately, getting a line of credit can give you a safety cushion. It can be there to help you get funds when you need them.
2) Budget Ahead and Maintain a War Chest
Budgeting can help a lot in protecting your cash flow. The better-planned your financial operations, the less risk there is. Of course, it is always susceptible to potential setbacks or mistakes in your projections.Maintaining a comfortable supply of cash can help make sure that you are always ready to keep your business running smoothly. For example, if you always have enough cash to cover at least the next few months of expenses, you don’t have to sweat a slowdown.
3) Leverage Invoice Factoring
Invoice factoring is a great way to bring in cash when you are short. This is a very simple but powerful financial tool. The process involves selling your current invoices to factoring services. You get cash now for your accounts receivable. The factor then collects from your customers.This is particularly valuable if you have difficulties with customers being slow to pay their bills. You can leverage factoring to avoid needing to wait to get paid for your goods and services.
4) Focus on High-Margin Products and Services
Examine your margins on each of your products. Are some of them cash winners and others losers (or smaller winners)? Which ones are helping you maximize your cash flow and which ones are holding you back?This analysis could help you optimize your business’s money-making abilities. If you find yourself constantly struggling with cash flow, try adjusting your product and service lines to bring in more money. This could be as simple as marketing your high-margin products more.
5) Revisit Your Payment Terms
Do you offer your customers time to pay you? Payment terms are common, especially for business-to-business operations. However, they can hold you back if you are always waiting 30 or more days to get paid for goods and services. This can be a huge cash flow problem. So, try renegotiating your terms. Alternatively, offer a small discount for paying within 10 days, for example.Additionally, consider renegotiating your terms with suppliers. If you can get more flexibility, you can ensure better cash flow.
6) Reduce Wastage
How often do you lose inventory? Are supplies expiring while they are sitting on shelves? Do things get lost in the hustle of your daily operations?Examining your product and supply wastage will help you to optimize your operations and improve cash flow. The closer you get to utilizing 100% of your inventory, the better your cash position will be.
You can apply the same logic to a service business. Take a look at how much time is being wasted by your team. Perhaps they are spending too much time traveling to clients. Find ways to minimize lost time.
