Tips for better managing your business’ cash flow
Managing cash flow is one of the most important parts of running a business. Without a positive cash flow, a business could be headed downhill very quickly. Effective cash flow managements isn’t limited to only making sure that profits outweigh costs, though – for a business to run as effectively as possible, it’s vital to ensure that payments are received and made on time, costs are kept as low as possible, and profits are maximized. For many business owners, the management of their cash flow can often be disrupted by a range of different things. We’ve put together a handy guide for better cash flow management.
Be Paid On Time
Being paid on time is crucial to the smooth running of the business and keeping on top of the cash flow. Making sure that any income is paid in before outgoings are taken out is absolutely vital to making sure that your business is not in the red when it comes to finances. However, many business owners make the mistake of thinking that they have no influence over when a client will pay an invoice, and simply believe that they have to wait for the payment to be made or start chasing up the money. However, thanks to invoice financing, it’s easier than ever before for business owners to be paid their invoices owed on time. Rather than having to wait for a client to finally make a payment, the business owner will sell the overdue invoice to a factoring company, for around 70-90% of the total price. This money is then immediately available to be used in the business, helping to avoid many of the common issues with overdue payments. Once the client has made the payment that they owe, a small fee is paid to the factoring company.
Cutting costs is important to every business owner, but when it comes to your business costs, you should always be looking for viable ways to cut them down even further. Getting cost-savvy means that you will be able to get a better cash flow and make a bigger profit simply by asking whether or not you really need to be paying something. In order to keep an eye on your business’ cash flow for the long term, you should constantly be looking for new and innovative ways in which you can keep costs as low as possible. However, bear in mind that some cost savings may require some investment upfront, for example a training course for your employees, an enterprise app or an outsourced finance and collections department.
Keep Cash Reserves
Whether your cash flow has been looking amazing for weeks, months, or even years, there is always the chance that you will have shortfalls. Because of this, it’s always a good idea to keep some cash reserved in the event of an emergency. The business industry is subject to constant change, and no matter what products or services you are selling, there is always going to be competition or something ‘bigger’ crop up which could damage your cash flow. How much money you have reserved for an event such as this could be the difference between that damage being temporary or permanent. Hanging on to cash reserves which can be used to do things such as pay bills and pay a wage to your employees in the event of a drop in incomings is absolutely essential to the success of your business, even though no business owner hopes to have to use them.
Offering incentives to both your clients and your employees is a great way to improve and manage your cash flow by boosting sales and boosting faster payments. Offering creative incentives to your sales staff doesn’t always mean that you need to give them a pay rise – there are a whole range of non-monetary incentive ideas which you could use. On the other hand, you can also use incentives when it comes to your regular clients – offering money off the invoice or a discounted rate on the next one simply for paying on time or before a certain specified date can help to keep your cash flow up-to-date by encouraging clients to pay their invoices quickly so as not to miss out on the special offer.
As a business owner, staying on top of your cash flow is absolutely essential to the success of your company. Cash flow management isn’t always easy, but with the right techniques for boosting sales, cutting costs and getting paid on time, it can be made simpler.