Many entrepreneurs are at a loss to explain why their businesses fail, but the main problem with many if not most of them is with cash flow. If they do not zealously monitor and manage cash flow, business owners set themselves up for failure. Here are some tips on maintaining healthy cash flow in your company.
Budget Your Finances
Leave nothing to chance or impulse when it comes to your business finances. Create a comprehensive budget that includes all income and expenses. Among the factors to consider concerning incoming funds are the sales cycle and the discounts and terms that you offer to customers. When calculating payables, include employee salaries, taxes, the purchase of supplies and equipment, and other expenses. On a monthly basis, or even more often if necessary, reexamine your budget to be sure that there are no shortfalls, and take steps to correct any imbalances.
Bill Clients Promptly
To ensure healthy cash flow, you need customers to pay on time. When clients purchase goods or services on credit, send out invoices within 24 hours, and remind them of upcoming payments before due dates. Offer discounts to customers for early payment. For large orders on credit that require purchases of inventory to fill, request down payments to relieve the strain on your cash flow.
Receive the maximum benefit from your cash flow by scheduling payments to suppliers precisely on time and not early or late. If the finances are available, ask sellers for a discount for cash payments rather than credit terms. For significant purchases, these discounts can have a substantial positive impact on your cash flow.
Have a Contingency Plan
Despite your best efforts to wisely manage your company cash flow, emergencies sometimes happen. Have a contingency plan ready for these unexpected shortfalls. Common sources for emergency finances include personal assets, acquaintances, and lines of credit. Apply for a line of credit when times are good, as banks are usually reluctant to lend money when businesses are in distress.
For more advice on maintaining healthy cash flow, contact Business Capital Providers.