It’s a wonderful thing to think about the incredible profits that your business will have in the near future, but what matters more is how much cash is going in. Cash flow is what keeps your business running. The outgoing and incoming cash will determine how you can sustain your venture. Plenty of potentially profitable businesses go under because they don’t manage their cash flow.
However, there are tried-and-tested strategies that will prevent your business from failing and ultimately improve your finances. The following steps will help you manage cash flow better and put your business to the next level.
1. Keep Your Accounting Up to Date
Take into account all costs and expenses in running your business. Record keeping might be a hassle, but it can help you stay on top of finances. Take advantage of accounting software or apps such as Quickbooks, XERO, or Reckon to manage your finances on the go. If you haven’t got the time to manage your finances, hire a bookkeeper.
2. Plan ahead and Keep a Cash Reserve for Quiet Times
Seasonal trends will affect your business in one way or another. It’s a good strategy to plan ahead for when cash flow slows down. Keep at least three months worth of expenses in the bank at all times (more or less depending on the customer lifecycle of your business). Any more than this, it wouldn’t be an inefficient use of capital. Any less than this, and you’ll be cutting it too thin. If you’re going to take out a part of your reserve for emergency expenses, make sure to put it back in when you get another cycle of cash flow.
3. Set Up a Line of Credit Before You Need One
Having a business line of credit will give you a good hand when there are emergency expenses or contingencies. You can always tap into a line of credit for short-term expenses such as paying contractors, buying inventory, or sustaining daily operations. For bigger expenses like expensive equipment or getting a commercial space, go for traditional loans which will allow you to pay for it in a longer term.
4. Free Up Capital by Leasing Equipment
New equipment has depreciation benefits. The interest in equipment financing is tax-deductible, and you can use the cash you free up to invest in other revenue-generating activities.
5. Get Customers to Pay On time
The best way to boost your cash flow is to make sure that your customers pay on time. Incentivise them to pay on time with early payment discounts or other perks. On the flip side of this is to delay payments to vendors as long as possible to give yourself some leeway. Unless of course they offer an early payment incentive.
6. Match Receivable to Payables
Take a look at the payment terms of your suppliers or contractors, and the payment terms of your customers. If your suppliers require you to pay earlier than you require customers to pay you, you’re creating a gap in cash flow.
Match your supplier’s terms of payment to your customer terms of payment. When it’s time to pay your suppliers, at least you’ll be able to cover it with incoming cash from your customers.
Take note of the penalties that your suppliers charge for late payment. Can you also apply it to customers who pay late so that you can make up for supplier penalties? Late payment charges can be an incentive for customers to pay on time, the same way that you can also pay your suppliers promptly.
7. Supplement Your Income During Slow Months
You can also seek out alternative business options during the slower parts of the year. What else could you offer to your market when an item is off-season? What other services can you provide which will complement your main offerings? Diversify into off-season alternative products or services so that you can keep earning even if it’s not your peak season.
You can also collaborate with other businesses to offer off-season deals to customers. Another tactic is moving your sales online, so that you can cater to national or international customers besides your usual local customers.
To further supplement your income, consider saving some of your profits in interest-earning accounts. From this you can keep your money growing even if you’re not using it for working capital. Part of your savings can also go to stocks or mutual funds, which will grow your money as passive income. Having different income streams in the form of active income from your business and passive income in other investments will give you various opportunities for financial growth.
If you need working capital for business without having to touch your cash reserves, go for unsecured business loans. The loans require no collateral on your part. Quotes take less than a minute and the funds can be in your account in 24 hours. Check out Bizzloans Australia for quick funding approval across 800 financial products.