3 tips to improve your cash flow
- Posted in Managing a Loan
Being self-employed and running your own show has some obvious benefits, but there’s a lot to owning a business.
You need to keep on top of quite a bit to ensure its survival and nurture its success. Part of that is carefully managing your money. The last thing you want is any credit impairment or even worse, bankruptcy.
So it’s a good idea to keep a keen eye on your cash flow. And that means regular check-ins on both your positive and negative cash flow to help track and control the inflow and outflow of funds. It’s not as easy as you may think and certainly needs the hard yards to be put in. Many business owners focus on sales and business growth to solve a cash-flow problem, but often overlook the cash flow itself and run into problems.
So here are at least 3 tips that can get you started towards a better cash flow.
1. Reduce terms or offer discounts
As a small business or if you’re self-employed, you can often suffer from receiving late payments from your customers. It not only puts you under pressure, but you can end up in debt and in a negative cash flow. So here’s the tip. Try reducing your terms. Not by too much, but still a reasonable amount of time for your customer to pay. You might like to try 14 day-terms instead of 30-day terms. It means you get the money you’re owed sooner rather than later. Another option is to negotiate better payment terms with your suppliers and customers. You could perhaps offer a discount for prompt or early payment or encouraging automated/direct debit payments. Even so, be wary of early payments leaving you with a cash flow shortfall.
2. Control your inventory
Your inventory can also play an important part in helping your cash flow. If you tie up too much of your money in inventory, it can cause cash flow problems. Prioritising is the key. In simple terms, keep the items you need most, not the ones you don’t. It will help you reduce your costs and lower your inventory level by carrying smaller quantities for a shorter time. Simply order as you need. Perhaps think about the value of lower priced products instead of the expensive, high dollar value items. The lower priced products can have a greater impact on your business.
3. Forecast and plan ahead
You can’t always see what’s around the corner for your business. However, a little forecasting can sometimes go a long way. While you might not be able to predict any upcoming surpluses or shortages, a great help is to forecast your cash flow and estimate the amount of money you expect to flow in and out of your business over the next 12 months. You need to think about both your projected income and expenses. It’s a good idea to track your cash flow on a monthly basis. It’ll help you get better and better at creating cash flow forecasts. And that will assist in giving you the ability to make solid business decisions and predict cash flow problems in time to do something about it. Cash flow projections are indeed the key to making smart and profitable business decisions. While cash flow is king, you must also keep on top of your tax obligations and not forget to set aside money for GST.