For any business, having a positive cash flow is necessary for long-term success. You need funds for your business's daily operations, including buying supplies, paying salaries and rent, and purchasing new equipment or inventory. When more funds are moving into your business than out of your business, this signifies a healthy cash flow. However, as many business owners know, this can be tough to manage.
A good cash flow increases opportunities for your business, such as the chance for growth and expansion. Consider these tips below to help increase your business’s cash flow:
- Manage your inventory Consistently track and monitor your inventory to determine whether you’re overstocking or understocking products. Look at sales trends. Record how long items sit on your shelves before they’re sold. In order to boost cash flow, it’s important to understand how much cash is tied up in unsold inventory. Once you understand your inventory trends, make the necessary adjustments to keep the money flowing.
- Collect receivables in a timely manner Create a process to ensure you send out invoices quickly and consider stating on the invoice “payment due upon receipt.” Offer discounts for customers who pay early. Also, make it easy for customers to pay you by offering different payment options. A few options include credit cards, ACH, and money transfer apps such as Zelle.
- Space out your bill payments Don’t pay all of your bills at once. Spread out your payments to slow down the amount of cash flowing out of your business at one time. However, make sure you pay on time so you avoid any issues or late fees. This is a balancing act, but good planning can help you maintain a strong cash flow.
- Control your expenses By cutting unnecessary costs, you can start to build a cushion in your cash flow. To start - review your expenses, highlight any costs that aren’t critical to your daily operations, and then decide whether it’s a cost you want to keep paying or not. Also, consider exploring alternative options to see if there are lower prices elsewhere.
- Keep a cash reserve What if your biggest customer missed a payment? Nothing is guaranteed. Reserving cash for unexpected events that may arise helps you to fund these expenses without having to use a credit card or borrow money. Most experts recommend having cash equivalent to three to six months of expenses in savings.
Successful cash flow management can help create more stability and security for your business while allowing you to chase your business vision. In addition to implementing these tips, be sure to regularly monitor the money moving in and out of your business.