It does not matter whether your business operation is large or small, good cash flow is necessary for survival. There are times in any sort of operation when cash abounds as well as different times when money is scarce. Although it may be difficult, it is important to evaluate your business cash patterns as accurately as possible, and more particularly when your business is young or in a growth phase.
Here are 5 tips on how to manage cash flow.
Plan Your Cash Flow
Even when you are diligent in managing your receivables and accounts payable, it is not always feasible to control the factors that could influence your business cash flow. It is therefore an extremely good idea to have plans that enable extra money to be available when uncommon events occur. Let’s have a look at some alternatives to increase cash flow even when times are tough.
For whatever reason, a lot of small businesses tend to charge less than they should. So increasing prices is one of the options you must seriously think about to increase cash flow.
Have a Sale
Small companies can utilize sales as well as large companies, especially when business is slow. If you have inventory that is slow moving, or damaged, or obsolete, then you could benefit from a sale. You can also use holidays and special occasions such as Christmas, Easter, Valentine’s Day and Thanksgiving as reasons for a sale. However, you need to consider sales carefully as you do not want to have a regular sale that people expect. And you have to remember that when you reduce the price of an item, you need to sell more volume to make the same amount of money.
Another potential way to increase cash flow is to discount your prices. Discounting could generate more sales because just about everyone enjoys a deal. However, as we mentioned in the section on ‘sales’, when you offer discounts, you have to sell a greater quantity to make the exact same amount of profit. For instance, when you offer a 10% discount on an item that has a gross sales margin of 33 %, your quantity has to increase by 50 % in order to make the same profit. So I would not recommend that you use discounting as not a long term strategy, although it can bring about short term gains.
Lease or Sell Assets No Longer Needed
Another technique you could use to enhance your small company cash flow is to lease or offer properties of the business that are no longer being made use of for sale.
So there are a few suggestions for improving the cash flow management of a small business. The fact is, as I stated at the start, cash flow is vital for a small business to survive. Consequently, this is the number one financial element that small business owners need to focus on.