Have you ever been surprised when a seemingly successful business ended up closing down? The reason was likely because they had cash flow problems. They may have had a lot of customers, but if they fell into difficulties with their cash flow, then it doesn’t matter how many names in the customer list they have: it won’t be long before they’re experiencing problems that can be hard to get out of.
If your cash flow is negative, then you’ll have difficulty paying suppliers, your employers, and your business bills. And if that goes on too long, your business will be in trouble.
That’s why it’s important to take proactive action to ensure that your cash flow is always just where you want it to be. In this blog, we’ll run through some handy tips that’ll push you in the right direction.
Send Invoices Promptly
It’s all good and well having a $5000 invoice with your customer, but if they haven’t actually paid it, then it’s not going to help your bank balance all that much. There are two ways to ensure that you don’t have problems because your customer is paying too slowly. The first way is to send your invoices promptly — they can’t pay if they haven’t received them! It’s also important to stipulate a date by which the invoice is due, so it doesn’t end up at the bottom of their to-do list. In some circumstances, it can be beneficial to offer a small discount for early payment.
Refine Your Products and Services
If you sell products, then your inventory management skills will be key. There’s little value in having products sitting on the shelf all the time. If you’re continually struggling to sell certain products, then it may be worthwhile rethinking your approach to stock. You may consider ceasing to sell a certain item if it’s a low seller and replacing it with an item that will fly off the shelves.
Fund Large Purchases the Smart Way
If you work in an equipment-heavy industry, then you’ll need to spend a fair amount of money to get the machines you need if you’re going to be competitive. There’s no getting around the fact that you need that equipment. But what is in your control is how you fund the purchase. If you buy the machine outright, then you’ll likely deal a significant blow to your cash flow. Instead, work with a company that offers an equipment financing service. That’ll ensure that you get your hands on the equipment you need, with a payment structure that is beneficial to your cash flow.
Borrow Money When Things Are Good
Many companies look to borrow money when their cash flow is in trouble. However, this is usually the worst time to seek help. Lenders may be cautious about giving money to a business that is going through difficulties, and even if they do agree to give you money, it’ll probably be on unfavorable terms. Instead, it’s best to open lines of credit before you need it. Banks will be much more likely to give you money when your cash flow is good, so don’t wait until the going gets tough before taking action!
Develop Your Vendor Relationships
You can go a long way towards improving your cash flow by investing in your vendor relationships. For one thing, it’ll most likely be your vendors that you have to pay, so the better your relationship, the less likely it will be that you fall into difficulties. One smart way to manage your vendors is to try to get payment terms similar to what you ask of your customers. If your customers have fifteen days to pay you, then having a similar payment timeframe with your vendors will make things much easier. Also, if you’ve been working with your vendors for a while, then it could be beneficial to ask for discounts. If not, then you may decide to change your suppliers — if you haven’t agreed on a price in a while, then you might find that there are better offers out there.
Create a Forecast
There are things you can do about cash flow problems. But the majority of things must be done before you enter cash flow issues. It’s much easier to take control of the situation if you know about it ahead of time. Of course, you can’t always predict the future. Some things, such as the coronavirus pandemic, will come out of nowhere and cause you difficulties. However, by and large, it’s possible to see when you might enter temporary financial difficulties. To have this information, you’ll need to put together a cash flow forecast. This will tell you when you may experience a high and low volume of sales, so you can adjust your funding accordingly.
Invest in Your Financial Reporting
Investing in your financial reporting is easy to overlook, but it can help stave off many problems that could cause real issues for your business. By putting together detailed financial reporting reports, you can get an in-depth understanding of your business’s financial health and ensure that incomings and outgoings are all correct. Having solid reports can also make it easier to open lines of credit, too.
Raise Your Prices
Finally, you may consider raising your prices. After all, the more money that you have, the better your cash flow will be — and you’ll be able to store some away to ride out the low moments, too. Of course, it’s not as if you can just raise your prices to whatever amount you want and hope that everything will be OK. You should also raise your prices if you’re confident that your customers would support such a decision.
Conclusion
Of all the many reasons why businesses end up closing, none are as common as cash flow issues. It’s simply too difficult to run a business when you don’t have enough to make all of your required payments. Pay some attention to your cash flow today, and you may prevent many issues from occurring tomorrow.
