Cash flow is the lifeblood of an organization as cash flowing regularly into a company is necessary to pay salaries, buy inventory and literally keep the lights on and the doors open. Companies are forced to slow their growth when they lack the cash inflows that are required to support the cost outflows. Owners who cannot efficiently manage their business cash flow are almost certain to fail and those who are able to manage can improve nearly every aspect of their business.
Below are five tips for managing the cash flow of your business:
- 1. Leverage modern technology:
If your cash flow is suffering, you might tend to shy away from wanting to invest in new technology. But the reality is, technology plays a vital role in managing any company’s cash flow as the right technology and platforms help an organization to efficiently track and forecast their cash flow.
- 2. Monitor your inventory efficiently:
It is pertinent to effectively monitor your inventory, as it helps in determining the redundant items that are blocking the working capital of your business. Inventory levels should be lean so that the working capital of an organization is not tied-up unproductively and unprofitably.
- 3. Incentivize customers to pay sooner:
To help facilitate better cash flow in your business, owners should offer their customers advantageous payment terms if they pay their invoices early. For example, customers who pay their bill within 10 days can take advantage of a discount of 15%.
- 4. Focus on cash flow management, not profits:
Negative cash flow and negative profits make for a grim combination. Usually business owners are focused completely on earning profits, but a business will struggle, if the business owner is constantly struggling to pay its bills. Without access to the cash that is required to respond to new opportunities and meet existing obligations, a business owner might not get a chance to see the company reach its full potential. Instead, they could end up having to close their doors much sooner than they expected.
- 5. Outsource your company’s cash management:
Owners can maintain their focus on the “big picture” of their business by relying on trusted advisers to take on the responsibility for accounts receivable and accounts payable. Outsourcing these routine accounting tasks frees business owners to focus on other strategic activities that will bring growth to their business.
Many profitable businesses have been shut down because of low liquidity that arises due to inappropriate management of cash inflows and outflows. Therefore, a business cannot survive and prosper if it does not exercise good cash management.
We at Quatrro, are committed to assisting you in maximizing the utility of your cash and provide you with insights about how exactly it is being utilized so that you can focus on your business growth and not worry about the cash inflows and outflows.