Ah…Cash flow, the life blood of a business! If the cash is flowing all is well with the world – turn off the tap and all of a sudden the wolves are circling you! The cause of a large portion of business failures can be traced back to lack of cash flow.
Let’s not confuse cash flow with profitability either. There are many businesses that are profitable and still suffer from cash flow problems. Here are some basic steps you can take in minimizing the risk of your cash flow becoming a liability.
Increase The Amount Of Cash Sales Made
Focus on fast moving product or services and review the pricing model and packaging to see if a component or all of the fees can be paid in cash. A cash deposit rather than invoicing after the service has been completely delivered also helps maintain the flow.
Stretch Out Payables
Negotiate extended payment times for suppliers. Going from 14 days to 30 or 60 days (based on an agreement of more business from you perhaps) can have a huge impact on your cash at hand.
Review how much you have tied up in your stock / inventory. You may be able to reduce the amount of money spent on automated orders or delay orders if you have sufficient stock available for forecast sales (you do tie your stock ordering to your sales forecasts, don’t you?). Review any slow moving or old inventory and have a sale to move it and convert it to cash.
Collect Your Cash Faster
Be diligent in collecting money owed to you via Accounts Receivable. Cast your eyes over outstanding amount s and make some calls – it is your money! Ditto on the Debtors. Don’t let other businesses or clients use you as their bank….
Cash flow is so important it is worth developing a strategy and plans to ensure it is a high priority in your business dealings. Incorporate daily and weekly reporting disciplines to track your cash flow status. There ‘s nothing more comforting than knowing you have cash at bank to cover a months overheads!