Key Ways to Get Cash Flow Back on Track in Your Business
No matter whether you’ve just
Closely Track What’s Going In and Out of Your Business
For starters, you will never be able to make your cash flow better if you don’t actually know what is happening, financially, in your business at the present. As such, it’s imperative to closely track the incomings and outgoing so you can get a clear understanding of your position, and what your typical deposits and expenses are each period.
Once you’ve spent some time analyzing the data, you can see which areas are draining your bank account the most, and take steps to cut costs. You’ll also be able to pick up on any particular cash-flow patterns which you need to plan for in the future so you don’t end up in a bad situation. Note, too, that tracking your cash flow is especially important during times of rapid business growth.
Get Your Inventory Levels Down
If your business is one that works in retail or otherwise has to keep a lot of stock or parts on hand, it’s beneficial if you find ways to get your inventory levels down. Lots of ventures unfortunately tie up a huge amount of cash in products, many of which just end up sitting in the warehouse doing nothing but taking up space. This means money is tied up in things you don’t need, which in turn makes it so much harder to find the funds to buy the goods you do need.
A smart way to control inventory more effectively is to take your sales history data and examine which items sell well, when, and in what kind of quantities; and which items you really don’t seem to be able to move. You should also keep details on products that your customers are asking for regularly, as this gives you an indication of what you should be ordering instead. Make sure you do regular stocktakes, too, to ensure your records match what you actually have on hand.
While many entrepreneurs stick with an annual stocktake and use this as the one time they look over their stores, this isn’t enough if cash flow is tight. Use software to help you keep on top of your stock on a weekly or monthly basis.
Once you have the necessary information, discount damaged, old, unpopular, outdated, and otherwise less-than-desirable inventory items so you can move them out the door and bring cash flow in. Consider introducing a pre-order system for new or popular lines too, so you can test out ranges, determine how much to order in advance, and get some funds in ASAP to use to pay suppliers or other deadline-driven bills.
Find Ways to Bring in More Funding
Next, remember that sometimes your cash reserves may be tapped out not because of bad management or other issues, but simply because your venture is growing, and you need more funds available to handle the expansion.
This may be particularly the case if you have just had to outlay money on things like adding extra staff members, buying new machinery or other equipment, attending a big trade event, etc. These expenses may result in lots of new sales eventually, but in the meantime you likely have bills to pay that you just can’t cover (or you may see that you’re heading into this position quite soon).
It’s a good idea, then, to source some additional funds to cover your cash flow over the next month or two, or longer, depending on your business and its situation. One of the best options for many firms is getting access to a business credit line, which allows funds to be drawn out, up to a pre-determined limit, and interest paid on the borrowings. Alternatively, utilizing invoice factoring or equipment financing may also work well for you. Just make sure you conduct research so you pick the best product and terms for your needs.
Get Customers to Pay You Sooner
Another important step in getting your cash flow back on track is to find ways to get your customers to pay you sooner. To do this, make sure your invoices have the payment terms noted on them clearly, in a large, clear font. This includes the due date and your bank account or other relevant details. This will reduce the likelihood that clients put off payments because they’re unsure when a bill is due or how to pay it.
It also helps to be careful about who you give payment terms (such as 30 or 60 days) to. Always conduct credit checks on individuals or businesses to find out if they’re likely to pay on time and in full or not. As well, send out reminders once your bills are a day overdue, and then again every one to four weeks after that if payment remains outstanding. You can program software to automatically send out these reminders for you.
Renegotiate With Vendors for Better Terms
Lastly, it’s beneficial for your cash flow if you renegotiate with vendors for better terms. You will free up some cash if you can organize longer payment terms, lower pricing, reduced or free shipping rates, and free additional goods if you make a set number of orders per period, or a certain value’s worth.
It pays, too, to ask for the ability to refund items (as long as they’re in as-new condition) you haven’t sold within, say, 30 or 90 days, or six months if your products are at higher price points. This way you’ll be able to try more new products, and not end up with your money tied up in goods which simply don’t move or for which demand suddenly dries up.
Melissa Thompson is the Founder of health and lifestyle publication HarcourtHealth. She currently writes for Forbes and Inc magazines, and spends her time promoting a healthy and fit lifestyle for business owners and entrepreneurs.Read Full Bio