There’s no shortage of reasons why a business might run into trouble. One of the most common is poor cash flow, which can quickly turn into serious problems. After all, it’s much more difficult to run a business when you have limited cash at your disposal. Even if the underlying figures behind your business (such as number of customers/sales), there’s only so much time you can hold on to cash flow problems before they put your business in peril.
In this post, we’re going to run through some tired, tested, and effective methods for improving your cash flow. These strategies will work best ahead of time (before you have cash flow problems), but some will also be effective when you’re experiencing the problem directly.
Lease, Don’t Buy
You’ll need to invest in equipment, tools, and other assets in order to run your business effectively.
They can be big expenses that have a big impact on your cash flow situation. A single purchase of heavy machinery can test the cash flows of even the most successful businesses. It’s much more financially savvy to lease rather than buy the equipment you need. This will give you access to the tools you need without breaking the bank. Plus, leasing also means that you won’t be in charge of repairs and maintenance, and you’ll be able to upgrade to the latest model once the lease period is over. It’s a no-brainer.
Check Your Customer’s History
It’s nice to get a big order, but if the customer doesn’t end up paying what they owe you, then it’ll quickly become a problem. You can’t always guarantee that your customers will be true to their word, but you can increase the chances that you’re dealing with trustworthy businesses. You can do that by checking their credit history, which will tell you their past credit and their payment habits. If a customer makes a big order, but you can see that they’ve been slow to pay other businesses in the past, then that should give you pause for concern. It doesn’t necessarily mean that you can’t work with them, just that you should maybe ask for an upfront payment.
Short-Term Loans
Most businesses experience short-term cash flow issues from time to time. In that instance, taking out a short-term loan can be useful. These types of loans are generally easier to get than long-term loans and can be recommended when you just have minor cash flow concerns that you know will be resolved within a couple of weeks. Just make sure that you’ll be able to fully pay off the loan on time; short-term loans have a much higher APR than long-term loans, so the costs can quickly spiral out of control if left unpaid.
Increase Your Prices
Many business owners shy away from increasing their prices because they fear that doing so will drive their customers away. However, that’s not automatically the case — in many instances, you’ll be able to increase the prices without losing a single customer. The key is to strike the balance between increasing your prices to a level that benefits your cash flow, while also being mindful of the customer’s needs. A moderate increase in prices is usually acceptable, especially if your products/services were initially underpriced. If you’re consistently experiencing cash flow problems, then making more cash from each sale may simply be a necessity.
Offer Discounts for Prompt Payment
An effective way to prevent cash flow problems is to ensure you get paid as quickly as possible. But of course, most businesses need a little bit of prompting to pay their invoices quickly. One way to encourage this is to offer a small discount if payment is made within the first week. You’ll need to take a hit of 5% or so, but it’ll be worth it if it helps you avoid running into cash flow problems.
Having said that, you don’t necessarily always need to pay your own bills as soon as they come in. If you have thirty days to pay, then it’d make sense to wait until you know you have plenty of cash in the bank before paying.
Chase Outstanding Debt
Your business success will be dependent on getting paid for your goods and services. Alas, there may well be occasions when a customer simply avoids paying what they owe you. While this can be stressful and unwelcome, it’s important to remember that you will have options at your disposal that will increase your chances of getting paid. Working with a company that offers rreceivable management services can be a highly effective way to recover unpaid debts. It’ll allow you to stay focused on your core operations all the while secure in the knowledge that the best is being actively pursued. Unpaid debts can be devastating for your cash flow, so make sure that you take action!
Get Smart About Inventory Management
You can invest your money into products that you’ll go on to sell for a profit, but if those products are slow to sell, and spend too much time in your warehouse, then they’ll ultimately have a negative impact on your cash flow. Getting smart about your inventory, and selecting popular, well-selling products is key to maintaining healthy cash flow.
If you have products that are difficult to sell and which are taking up space in your warehouse, then consider selling them at a discount. It’ll be better to get rid of them and generate even small amounts of money to boost your cash flow, rather than holding onto them forever in the hope that they’ll eventually sell at full price.
Make Payment Easy
You’ll make it much more likely that a customer pays quickly if the payment process is easy and straightforward. On the other hand, if you have a limited number of payment options, then there’ll be an increased chance that your customers delay making a payment. Your customer might be happy to pay their invoice immediately if they can do so through a single Paypal click, but they’ll be likely to drag their feet if they have set up an account with a payment processing website that they’ve never heard of before.
Negotiate With Suppliers
Lowering the amount that you pay your suppliers is as effective as raising your prices. If you can do both of those things, then you’ll be helping to significantly bolster your cash flow.
If you have a good relationship with your suppliers and have always paid on time, then look at asking them for more favorable rates. They’ll be happier to work with you to find the best price rather than risk losing you to a competitor.
If they’re not open to having this discussion, then take a look to see what other options you have available. In fact, exploring the market can be a good idea anyway, since there may be a new supplier in town who offers the same goods/services at a better price.
Cash Flow Forecasting
Some periods of cash flow issues seem to come out of nowhere, but most can be predicted. For example, if you know that January is usually a slow period for your business, then you can anticipate that you may run into cash flow issues and take precautionary steps, such as avoiding unnecessary spending in the months prior to those periods.
Review Expenses
The less money that flows out of your bank account, the better your cash flow position will be. If it’s been a while, then take a look at reviewing all of your expenses one by one. You may find that there are some expenses that can be removed entirely. For the ones that are eating up a big slice of your cash, check to see if there are any more affordable alternatives available.
Improving Your Hiring Processes
Many businesses end up spending much more money than they should on their hiring processes, not because the cost of hiring is expensive, but because they end up hiring the wrong person and have to replace them within a few months, By improving your hiring process, you can ensure that you get the right person at the first time of asking.
Sell Unused Assets
Our final tip for improving cash flow is to sell any unused assets. Many businesses are cash-poor, and asset-rich. Working to unlock some of the capital that’s tied up in your assets can be a highly effective solution for dealing with short-term cash flow issues. It’s not recommended to sell assets that you still need, but if there are goods that you won’t need in the future and that can generate cash, then go for it. You can look at exploring alternative options, too. For instance, selling old, damaged equipment to a metal recycling company.
Conclusion
As we said earlier, it’s normal for businesses to experience cash flow issues from time to time. If you encounter them at your business, then take action promptly. Even relatively successful businesses can quickly run into difficulties if their cash flow issues aren’t handled quickly.
