Money is the lifeblood of business and cash flow is probably the best indicator of how much money you have in your business. Cash flow is simply the total amount of money that circulates in and out of your business as a measure of liquidity. Interestingly, much of the financial problems that a business has can be traced to a fundamental cash flow problem. For one, businesses that don’t have positive cash flow won’t be able to take advantage of opportunities in their markets and industries. In fact, businesses without positive cash flow will eventually end up closing shop.
Interestingly, cash flow problems seem to be endemic in the business world. Any business can experience a cash flow issue irrespective of their industry, market, or location. In fact, cash flow problems tend to be the rule and not the exception among small businesses. Nonetheless, the following tips can help you manage cash flow more efficiently in your business.
1. Increase the price of your products and services
Many business owners often shy away from charging higher prices for their products and services because they don’t want to “offend” their customers or rock the boat. However, if the cost of production or operational expenses has increased, it is only fair that you increase your fees and rates in order to stop your profit margins from shrinking further. Interestingly, many customers are used to price increases; of course, they’ll won’t necessarily like an increase in price, but they won’t stop being your customers if your product still offers them excellent value.
2. Adopt effective solutions for getting paid
Some businesses experience cash flow problems because they still use ancient methods for getting paid for their products or services. If your customers place orders on phone or via post, and you have to wait for them to mail checks to you, your business will regularly have cash flow problems. You can also expect to have cash flow problems if you remain stuck with cash registers when the rest of the world has moved on to a cashless economy. You may want to consider getting modern payment solutions such as a POS software and hardware that accepts EMV cards or mobile payment solutions.
3. Encourage customers to make early payments
Some businesses suffer from cash flow problems because they don’t get paid in good time for your goods and services. If you wait until the end of the month before you send out invoices to all your clients at once, you may suffer cash flow problems. Hence, it might be better to send out an invoice for a job as soon as the job is completed. You can also consider offering your customers some incentives that encourage them to make early payments. 5/10/net 30 could mean giving clients a 5% discount if they pay your invoice within 10 days; otherwise, they are under obligation to pay the invoice within 30 days.
4. You can always find new ways to keep costs down
Keeping business costs down will free up more cash that you can apply towards other aspects of your business that are currently suffering from a cash crunch. You can apply cost-cutting effort on your equipment, facilities, properties, raw materials, and labor. Starting with inventory, you might want to reduce the volume of raw materials or finished products you have in stock by taking a data-driven approach in order to reduce the amount of money you tie down as stock. You may also want to consider leasing equipment instead of spending huge sums of money on their outright purchase.