4 Golden Rules for Healthy Cash Flow in a Small Business
Did you know that about 60% of all the small businesses that fail do so while still being profitable? Bizarre as it may sound, this is a true fact and much as there could be many underlying issues that lead to their failure, most of them fail because they didn’t manage their cash flow in the right way. As we are all well aware when it comes to matters financial management, cash is king and it goes without saying that you have to respect this in order to survive.
For instance, if for whatever reason you are using a large amount of your capital, chances are you will hit a very real wall in the near future if you do not find a way to bring in more cash and fast. After all, if you do not have money flowing into the business, you won’t be able to pay your suppliers and your employees; and without these two factors, no business can function at all. This is the reason as to why you need a healthy cash flow that will cover the gap when necessary. But how can you get a healthy cash flow?
Below is a list of strategies that will help entrepreneurs improve their cash flow management for the long haul.
1. Don’t Be Too Eager With Payments
Most suppliers will normally give you an allowance of about 30 to 60 days for payment. This, therefore, means that if you anticipate cash flow problems, you can delay the payments for as long as you possibly can. With that out of the way, you can cover the areas that are absolutely necessary such as salaries in order to still keep the business running.
However, much as this strategy is effective, it also happens to be a short term one because you can’t delay payments forever. What’s more, if word gets out about your delayed payments or your inability to afford to pay suppliers, suppliers may start avoiding your business.
2. Improve the Receive Rate
Somehow connected to the strategy mentioned above, this strategy happens to be a good way to motivate customers to pay faster. Some of the things you can try in this strategy include:
- Offering discounts to customers who pay sooner than later
- Asking for a deposit when an order s placed
- Desisting from waiting too long to issue an invoice
- Making a follow up on customers who forget to pay your bill
- Instituting a cash on delivery policy so as to avoid slow paying customers
- Ensuring that every customer understands and accepts your payment terms
All these should be able to help improve your cash flow considerably.
3. Think About a Loan
When cash is scarce, a short-term loan is an easy solution out of the problem. It’s also a great way of reducing the gap between payables and receivables whenever such a problem presents itself. However, loans carry a certain risk, even on a short-term basis. Not to mention the fact that finding the right funding solution might prove to be a pain if you choose to take it from your bank.
If you’re in such a situation, check out the option of alternative finance. This option allows you to apply online with your credit needs and you are presented with a wide range of solutions that fit your requirements. The only difference between this platform and other financial institutions is that you’re dealing with a non-bank financial institution, which means the approval process is simpler and faster.
4. Use Technology to Monitor Your Cash Flow
In this day and age where technological advancements have become so prevalent, there is basically an app for pretty much everything. As a result, there are also cloud-based software solutions that can help you keep track of your accounts wherever you are. This means you won’t have to be at the office to check on your cash flow situation and you will know in real-time what happens with your accounts.
If you don’t have the time to keep an eye on the money coming in and the money going out, train one of your employees for this job. It’s easy to learn and you will be notified in time if there is a problem. Also, make sure you’re focusing on cash flow and not on profit – if the cash flow is good, your profit will also be quite good.