4 Ways to Manage Cash Flow and Grow a Business
Cash flow is a major concern, in any business undertaking. A successful business is measured by among other factors, how cash flow is managed. This entails the flow of cash into and out of business. Therefore there’s every need to encourage those who owe you money to pay up soonest possible, whereas you could hold onto any cash you get at least until the agreed time to ensure the efficient running of your business. Encouraging clients to pay in cash and easing the way you transact with them will also serve to increase the flow of cash into your business.
Four ways to manage cash flow
1. Managing Payables
Suppliers are a crucial part of your business; they provide the items with which you use to transact and more so offer credit to you. Negotiate good credit terms and be sure to adhere to them, this will enhance your relationship with suppliers making carrying out business with them quite efficient. However, here are some key points to enhance payables management;
- Take advantage of the credit terms. Often the credit terms run for 30 days within which you are to pay the amount. In case you get the cash before the date, re-invest the cash in your business, and pay up on the 30th day. However, in the case of favorable discounts, don’t hesitate to settle the payment.
- Maintain constant communication with your suppliers; this is especially when you will not be able to settle the amount on the agreed date. Through the constant communication of progress, you get to earn their trust and understanding hence earns a grace period to settle your payment.
- Embrace technology; use electronic fund transfers, this will ensure that payments are not delayed, more so on the final day, and this could not work well in mending the relationship with your suppliers.
- Carefully analyze the terms offered by creditors. For instance, an offer for a discount could result in a high loan to your supplier or it could be an opportunity to reduce the amount you are to pay.
- Strategize while choosing creditors, a lower price should not be the only consideration before making a choice, at times flexibility of payment may work best for your business.
2. Improving Receivables
Receivables are among the assets to be closely monitored especially pertaining cash flow. Push them to pay up, and don’t be lenient on them push harder if the need arises. However, a few techniques could work and help you recover your cash sooner;
- Offer discounts to enable them to pay their bills sooner
- Encourage customers to make deposits for the payments when they come to purchase.
- Thoroughly scrutinize new customers before offering the goods or services they require to be sure that they will settle the payment
- Issues invoices promptly then follow up if the payments are delayed.
- Track accounts receivables to identify the slow paying clients and to strategize effectively.
3. Increase sales
Increasing sales could work in two ways. First; attracting new customers. This will entail advertisements, and promotions, hence require injection of more capital into the business. Second; selling more items to the existing customers. However, to effectively achieve this, you need to understand what clients want. This step will enable you offer the items at affordable prices. The move could work to your advantage especially if you endeavor to embrace cash sales.
4. Lease machines instead of buying
You are looking to increase the cash inflow and reduce the cash outflow so as maintain a steady and manageable cash flow. In purchasing machines and other equipment, a lot of money goes out of the business. On the other hand, when you lease equipment, you get to use it as you like, while only paying annual lease rentals. Eventually, on expiry of the lease agreement, it goes back to the owner, or you can acquire the equipment at a lower price.
Proper cash flow management will translate to better management of the entire business since you take better business decisions. This plays a role in increasing productivity as well as the profitability of your business undertaking. Strive to increase your cash inflow and minimize expenses; this gives rise to higher profits hence assuring your business partners and stakeholders of the going concern of your business.