When running a small business, one of the biggest challenges you are likely to encounter is how to successfully manage your cash flow. While cash flow doesn’t necessarily equate to profitability, being able to have more money flowing in than what is going out is key in keeping your business afloat. Having a positive cash flow also sets the foundation for business growth, and this is exactly what you want when running a small business.
Is your business on the verge of collapsing due to a pile-up of bills and unpaid invoices? Here are five strategies that will quickly boost your cash flow and set you up for success.
Collect your payments quickly
Want to boost your cash flow fast? Start by shortening your receivables. A few strategies to help you collect payments quicker include giving incentives to customers who pay their invoices early or on time, penalising late payments, sending invoices immediately after delivering goods or services, and adjusting your payment terms, for example, from 45 days to 30 days.
Also, if you are dealing with a number of customers, don’t forget to monitor your receivables regularly while it’s also a good practice to follow up on late payments.
Have a line of credit
Regardless of how careful you can try to be with managing your business finances, you will inevitably find yourself in a cash flow fix on some days. To prepare for such, consider having a line of credit on standby to help your business take care of the outflows as you await payments.
For starters, you can talk to your bank for a possible accounts receivable line of credit. Depending on your standing with them, some could be willing to lend you up to 80 percent of your expected receivable which they deduct immediately after payments hit your account.
However, if a bank loan is not an option for you, probably due to the long, bureaucratic procedures involved before accessing the cash, you may consider going for more flexible lenders like Iwoca – one of UK’s best business loans providers. Get your money within 24 hours of applying for the unsecured loan whose only security is personal guarantees from business directors.
Sell or retire unused inventory or equipment
If you own any equipment that you haven’t used in months, probably because it stopped working or is no longer suitable for your business, the best thing you can do is to sell it off and free up capital and productive space. The same should be done to excess or obsolete inventory unless the proceeds from such sales are negligible or the cost to retain them are minimal.
Make it easy for customers to pay you
Ever tried evaluating the impact your choice of payment methods could be having on your business? For example, if you accept checks as one of your modes of payment, do you factor the time it takes for money to reach you and how that affects your cash flow?
If you are looking to boost your business cash flow, one of the most effective ways is to make it convenient for customers to pay you. A good place to start is to expand your payment options to accept quicker methods such as credit and debit cards. You can also consider going the digital route by accommodating digital wallets and mobile payments including Apple Pay, PayPal, Skrill, and even cryptocurrencies like Bitcoin.
Look for ways to cut down expenses
The idea behind this strategy is to minimise the amount of cash flowing out of the business (of course while trying to increase inflows). For example, you don’t need to spend a lot of money upgrading your tech tools especially if what is currently in use is giving you the results you want. Also, why spend so much money buying new equipment when there’s an option to buy used and better-priced ones in good condition?
The idea is to find as many ways to save money as possible while at the same time increasing your overall revenue. Visit auctions for bargain buys, repair capital equipment instead of replacing or overhauling them, downgrade your premium software subscriptions or migrate to free, open-source tools, etc.
Having a sustainable cash flow will help your small business take more calculated risks, reduce the possibility that you’ll be cornered to make upsetting (and often haphazard) decisions, and ultimately grow your bank balances. Implement the five cash flow strategies we just explained in this post to safeguard the future of your business.