Review: How to Improve Cash Flow
Keeping an eye on cash flow is vital for maintaining business health. Without positive cash flow, businesses risk experiencing crippling cash flow problems. In fact, poor cash flow is a big reason why one in four businesses won’t survive its first year, and why over half of businesses don’t survive past the fifth.
Cash flow problems can occur even when a business looks profitable. However, it’s important to remember that cash and profits aren’t the same. Until customers pay their invoices, bills can’t be paid. So, even if a business is doing a lot of business, if customers are slow to pay on their invoices, cash flow problems may occur.
Reviewing vendor pricing, eliminating frivolous expenses, and investing in time-saving tools are typical cost-cutting efforts. But what if these efforts aren’t enough?
Luckily, there are proven methods for improving cash flow. Here are 10 tips:
1. Keep accurate books: Review and clean up financial statements to track where money is going. Understand metrics like invoices issued, invoices paid, invoices received, invoices paid, and taxes withheld. Use accounting software to automate invoicing and track late and unpaid invoices.
2. Forecast and manage cash flow: Regularly compare actual results to forecasts to highlight changes and make necessary adjustments.
3. Monitor accounts receivable: Watch for trends in accounts receivable to ensure invoices are being paid. Set clear payment terms, avoid complex terms when invoicing, and regularly test terms and conditions.
4. Minimize accounts payable: Watch for increases in accounts payable and schedule bill payments to happen on the day before they are due. Look for prompt payment discounts.
5. Carefully manage inventory: Review current inventory and sell slow-moving items. Clear out inventory to generate cash and carefully weigh the cost of volume discounts.
6. Send invoices immediately: Accelerate the billing process and include prompt payment discounts to encourage faster payment.
7. Know when to lease and when to buy: Consider leasing equipment and renting space to avoid tying up capital. Plan for long-term investments and purchases.
8. Develop new marketing campaigns: Retool marketing campaigns to increase dollars per customer from existing target market. Test special offers, discounts, and loyalty programs.
9. Open a business savings account: Research high-interest savings accounts to make money work for the business.
10. Increase pricing: Carefully plan and market price increases to generate more revenue. Consider timing price increases with product improvements and offer legacy pricing to current customers.
To maintain cash flow, actively forecast cash positions and regularly revisit cash flow statements. Use tools like cash flow statements and software to track and improve business health.
By implementing these tips, businesses can improve cash flow and increase their chances of long-term success.
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I’m Andrew Brooks, a seasoned finance consultant from the USA and the mind behind phonenumber247.com.
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