Cash flow is the sum of money flowing into your business. You have a positive cash flow if u start reinvesting in your business, your debts are cleared and, liquid assets start increasing. You have a negative cash flow when your payrolls get affected, running short of cash for daily operations and, you are close to bankruptcy. Cash flow is not the same thing s profit you can make a profit but still have a negative cash flow.
Estimate your cash flow:
This will help you in planning. Start by forecasting your cash flow by using the previous year’s data. Estimate overall cash flow summing up inflows and outflows. This information will help you evaluate potential issues and make strategic decisions to improve cash flow.
Offer discounts for early payments:
Providing incentives to clients who pay early will improve your cash flow. Everyone loves incentives and, this strategy will reduce your accounts receivables increasing your revenue.
Customer credit checks:
Before signing a contract with a client, make sure you keep a check on their credit history. If the client has poor credit, then you can assume that you won’t get payments on time. Late payments will hurt your cash flow. If you still opt for that client, make sure to set up an interest rate in case of late payments.
Reexamine and re-negotiate terms with long-standing clients if the terms are not working in favor of the business.
Keep track of goods that are not selling well. Idle goods will hurt your cash flow. Do not buy more of what is not selling. Get rid of the unsold stock even if you have to sell it for discounts.
It’s good to have multiple payment platforms. Making payments digitally will help you collect payments faster and improve cash flow. You can use a payment gateway to turn the way you collect payments easy for you.
Leasing is better:
To maintain a steady cash flow, leasing is the best option. Leasing anything from warehouse, machines, equipment, building lets you pay in installments, which is a business expense anyway. You can divert this cash towards productive activities such as research and development. Buying assets can take a big hit on your accounts.
Track your expenses and cut out unnecessary expenses. Some ways to reduce expenses include, keeping a check on travel expenses, save on electricity, etc.
Reduce your operating costs and identify areas where you can reduce costs.
Make wise investments:
Repaying your loan obligations early on can help you reduce interest payments. Invest cash in such a way that it increases your sales. Open high-interest savings accounts.
Experiment with pricing:
Increasing your prices is a great way to increase your cash flow. Increase the price, keeping in mind that the customers should find the price reasonable. There is no harm in experimenting with pricing and finding out what price will be the right fit for your organization.
Use cash flow spreadsheets, accounting software, and other tools to improve cash flow. If you improve your business processes, then it’s easier to manage your cash.