The vast majority of small businesses struggle with it. What can you do to maximize your liquid assets?
“Cash flow” is a complicated concept. It’s not as simple as making more money than you spend. It’s not profit vs. loss. It has to do with the flow of your liquid assets; that is, your cash and anything that can be easily converted into cash.
“Positive cash flow” means that you’re on the right track. Your liquid assets are growing. You can probably guess what “negative cash flow” means.
Which means that the idea, of course, is to keep increasing your cash and holding the line on expenses as much as possible. Here are five ways to work toward those goals.
Take a close look at your receivables and payables.
Your accounting software may be helpful here by reporting on the average number of days it takes your customers to pay. Start a conversation with the slow payers to see if you can speed up their payments. Do you have an active collections effort? You probably have cash sitting in old unpaid invoices.
You can also evaluate your bill-paying practices to see if you’re committing cash faster than you have to. Early-payment discounts are good, but balance them against the premature loss of your cash.
Same goes for customer discounts. Is the loss of revenue significant enough that you’re really not getting ahead this way?
These types of decisions involve complex calculations and analysis. Talk to us if you want to restructure your receivables and payables.
Try to initiate payment plans.
Work with both vendors and customers on this one. If you’re doing a major project for someone, are you waiting until it’s completed to invoice? Consider breaking the total down into chunks and billing the customer multiple times. And if you’re purchasing a lot of product from one supplier, see if you can set up a payment plan. In both cases, it doesn’t hurt to ask.
Do some comparison shopping to reduce expenses.
Once you have your established set of vendors in place, it’s easy to just keep sending those purchase orders to the same crowd. But have you looked around lately to see if you can save enough money to warrant breaking off a long-time relationship? You certainly don’t want to buy lower-quality goods, but the internet makes it easy to comparison-shop.
Balance your inventory.
This is a tough one, and you’re probably already making efforts in this area. You want enough stock on hand so that you can fill orders quickly, but you don’t want a lot of cash tied up in unsold inventory. We can work with you to try to create a better system.
Get your whole staff on board.
Although you make decisions about the big purchases, you may be letting others authorize smaller expenses. Let everyone know that you’re trying to maximize your cash flow – not because the company is in trouble (unless it is), but to improve your overall financial health to accommodate future growth. Offer a prize for the best money-saving suggestion from your employees every month. Don’t give cash advances for travel; instead, have road warriors use a company credit card or use their own (you can offer to pay their annual fee). Every little step starts to add up after awhile.
It is possible to forecast your company’s cash flow out into the future, but like the concept of cash flow itself, it’s complicated. We’d be happy to work with you in this critical area.