If you’re a business owner looking to improve your financial assets, you might be overwhelmed with how much work that seems to take. Running a business can become a constant battle of chasing down receivables and trying to maintain a steady cash flow. But sometimes the smallest things can help us improve.
Here are ten simple actions you can take right now to start on a path towards a better cash position.
#1 Start Requiring Prepayment
An easy method of improving your cash flow is beginning to require a deposit on large orders prior to beginning the project. This is a direct way of avoiding negligent clients who aren’t reliable on payment terms, by having them pay a percentage of the money up front.
This way, you also won’t be creating as big of a gap in your cash flow, between the money spent completing the project one month and the payment for the work being received months later. It’s as easy as making a small change to your standard policy terms.
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#2 Make the Decision to Lease, Not Buy
Nearly every business owner requires some kind of equipment, supplies or working area in order to develop their product or service. Between leasing these things or buying them altogether, buying might seem like the right option, since it’s cheaper long-term.
However, experts agree that in the majority of cases, leasing is a better choice to make for a small business’ cash flow. Not only is leasing a business expense that can be written off every year in tax returns, but paying in small amounts over time will secure your cash position as well, rather than putting forth a giant sum all at once.
#3 Do an Inventory Check
Improving your inventory is a long term goal, but you can take a good look at your current inventory today and start evaluating what might need fixing. Are there some products that aren’t pulling their weight? What makes the most sales and what doesn’t make enough?
The products you offer and the rates they’re being bought at are one of the most obvious indicators of your cash flow. Cut out the goods that aren’t selling by offering them at a discount, and take note of which products are the most popular amongst your customers.
#4 Identify Negative Cash Flow Trends
Your cash outflows are the total amount of funds leaving your company, including expenses such as employee wages, materials, maintenance and loans you may be owing. Your cash inflows would then be the money going into your business. In order to maintain a good cash position, it’s logical that your cash outflows should be significantly lower than your cash inflows.
Improving your cash position is a matter of identifying the trends that are causing an excess in your cash outflows, such as spending too much on inventory items that aren’t being used enough, or a decrease in your cash inflows, such as mismanagement of receivables. Once you identify these trends, it’ll be that much easier to work towards repairing them.
#5 Evaluate Your Receivables/Payables Ratio
The payment terms you apply to your customers should match the payment terms you apply to those who provide your supplies. Let’s say your clients tend to pay within two months of being asked, while you pay your suppliers in a 30 day interval. That’s one month unaccounted for, which is creating a negative trend in your cash position.
If your suppliers provide a finance charge for late payments, you should be applying that same logic to your clients. If they offer a discount, you should do something similar. In many ways, your receivables management should mimic your payables management.
#6 Choose to Put Your Customers’ Preferences First
Are you catering to your own preferences, or what your clients want? While you’re discussing your payment terms with your customers, you should be asking them what billing schedule they prefer and which payment methods they like to use.
Asking these kinds of questions will build trust with your client and ensure that they have all the resources available and most comfortable to them so that they get the incentive needed to pay on time and fully.
#7 Start a Reserves Fund
This is a part of owning a business that is crucial, and yet often overlooked by many owners. You should always have savings tucked away in case of emergency. If and when your business falls on hard times, that reserves fund will let you hold up your operating costs while you get back on your feet.
Start by choosing a percentage of your profits to separate from your revenue each month and be put into a business savings account. Contact a professional accountant or evaluate your cash flow forecast in order to determine how much you should be saving per month in order to build a secure reserves fund over time.
#8 Consider Updating Your Prices
Raising prices can be an intimidating action for many small business owners, but at the same time, underpricing a product or service can and will be catastrophic for your cash position. When is the last time you sat down to study your competitors’ prices and research the market of similar products? Think over the budgets you’ve set for your goods and how they relate to your cash position. Don’t be afraid to experiment with differing your prices in a hypothetical forecast before making a decision.
#9 Upgrade Your Tools
A lack of organization can often be a key indicator for the slow decrease of a business cash position. If it’s not already in place, you should be utilising a reputable cloud-based software to manage your accounting, invoicing and data tracking as your business grows. Not only that, but you should be making the most out of its use.
There are several add-ons and features that could be incredibly useful to your company, but are missed out on due to only using what’s displayed on the surface of the software. Get to know your system tools, review them often and evaluate your options.
#10 Inform Your Team
You’re more likely to make a big change in your cash position if it becomes a company-wide priority. If you truly want to improve your cash flow, you need to inform all of your employees about the goal you want for your company, both now and in the long term. Everyone should be putting in their ideas and their effort in order to make this a reality.
Giving your staff an objective to work towards is not a only a great motivator, but it will do the job of putting everyone’s eyes on the prize, and therefore accelerate your cash position at the same time.go back