If you haven’t been living under a rock, you’ve probably heard of the saying: cash is king.
From paying your employees to purchasing new stock, cash is used in all manner of business transactions. Whether you’re just starting out or running an already established business, good cash flow management is an essential part of being an entrepreneur.
Simply put, managing your cash flows is all about minimizing outflows of cash whilst ensuring that debts (cash in) are collected as quickly as possible.
Join us as we take a look at some of the most effective ways of ensuring that your business has a healthy cash flow.
1. Reduce expenses
Value leakage is a serious problem for most businesses. Oftentimes, smaller expenses are overlooked and ignored thus adding up over time. These can range from unneeded subscriptions to loan repayments which all eat into your monthly cash flows.
Think about it like gambling. If you bet on sports like basketball or football in places like BetAmerica, you know you have to invest the bare minimum to have the maximum income. Otherwise you are losing more than winning.
Take the time out every month to perform an audit of your expenses and identify areas in which costs can be cut. Whether it’s educating employees on the importance of reducing waste or renegotiating the repayment terms on your business loan, every single cent is worth saving.
2. Keep track of your debts
There is a clear difference between securing new business and collecting payment. While you may have a steady stream of revenue flowing in, a growing mountain of uncollected receivables is equally as bad as not having any revenue at all.
This is why it’s vital that you stay on top of your receivables at all times. As your business grows, consider investing in an accounting system in order to keep track of your debtors. Regularly following up on outstanding payments is vital if you are to keep the cash flowing in.
3. Make invoicing a priority
Invoices are an official statement of a transaction that has occurred between the buyer and the seller. Whenever a product or service has been sold, ensure that your invoice is issued immediately without fail.
Ensure that your invoices are clear and easily understood by your customer. Always include the relevant person’s name and department to prevent them from getting lost.
Even better, go paperless and email the invoice directly to your customer for processing. The faster an invoice has been issued, the faster that you’ll be able to receive payment for goods sold or services rendered.
4. Liquidate unneeded assets
Assets are defined as resources owned or controlled by a business that provide either a tangible or intangible benefit to the organization. Assets can range from stock on hand or property and equipment.
Sometimes however, when the useful life of such assets has passed it would be better to liquidate these assets. For example, old and unused furniture or equipment can be scrapped and sold for additional cash thus eliminating the need to pay maintenance or storage fees.
5. Offer incentives for quick payment
It should come as no surprise that most customers tend to drag their feet when it comes to making payment. Hence many business owners find themselves walking a fine line between getting fleeced and maintaining a cordial relationship with their customers.
This is why many businesses often offer rebates or discounts on payments received ahead of time. Giving customers an incentive to make early payments helps to ensure a steady source of cash flow.
Before providing such incentives, do the math to ensure that you’re not cutting into your own margins i.e. offering too much of a discount.
Running your own business can be a challenging affair with so many factors to worry about. By maintaining a healthy level of liquidity in our business, you’ll be able to sleep much easier at night.