Failure is down the next lane for any business owner who cannot manage his/her cash flow efficiently. When a business has more outflow than inflow of cash, a crash is bound to happen. That’s why we keep hearing about entrepreneurs whose businesses die off not long after inception. The business idea and plan was splendid, the products or services were innovative and yet, their company gave up the ghost even before it started. There is no supernatural force at work here, the likely culprit is you. You put your business at risk when you fail to track and manage your cash right from the onset.
The growth of a business depends a great deal on its cash flow. Entrepreneurs should not take lightly, the need to devote quality time in assessing the arrival of diverse revenue streams and weighing that against the various expenses that they need to pay. The cash flow for every approaching period: day, week and month must go through a thoughtful estimation. No other business goal should be placed above the cash flow of your company—that will be a grave mistake. See it this way, if you go bankrupt, how will those other plans you’ve made a priority come to life?
There’s no two ways about it, you need to maintain a strong inflow of cash for your business to continue thriving. Here are seven tips to help you do that:
- Have a budget
Create a budget putting into consideration factors that can affect the arrival of cash, factors like provided customers, sales cycle, terms and discounts and industry delinquency. In the same vein, it is crucial to estimate cash outlays and other expenses. This includes the time you purchased equipment, supplies and raw materials. All your daily expenses, schedule for salary payment and payment of taxes should also be estimated.
- Know your expenses
In order to generate a strong cash flow, you need to be mindful of the discounts you offer. Although you can attract new customers by discounting on your own or through coupon sites like BuyWithMe and Groupon, you will be the one to lose if you operate at a loss. If you must offer discounts, know the profit margins on your service or product, the ideal amount you should charge and the amount you paid for the product. Without a good knowledge of all these, there’s no way you will know if your discount is to gain or loss.
Also, keep track of all the expenses related to your business—from hospitality to travel. Cut down on those expenses that are not necessary. This way, you won’t be shocked when you see your expense claims at the end of the month.
- Monitor the results of your budget
Try to be more frequent with the assessment of your budget. Know what’s not working by comparing the actual cash flow with the budget. Make efforts to know what the problem is if the cash inflows are below your expectations. Also important to work out is a cash outflow that is greater than expected. Once you’ve ascertained the reasons for the variances, you can then take necessary steps to correct either the business plan or the budget or both.
- Encourage repeat business
Every volume-driven business owner must definitely understand the importance of loyal customers. Customers who patronize your shop repeatedly are the holy grail for profit, cash flow and growth. This is why you need to channel your efforts towards getting customers that will keep coming back. You could try creating frequent-shopper programs, loyalty programs and VIP offers. Don’t forget how much shoppers love the word “free”, you don’t have to break your bank to cover that. Just use low-cost or excess inventory that are equally valuable.
- Have a backup plan
Don’t wait till you’re in money trouble before you start making plans for the rainy day. Even if you have the best cash management system, unexpected situations can still rear up to wreak havoc. When it does, your business operation will only keep running if you have a contingent source of cash to rely on. You can get contingent funding from your friends, family, personal assets and lines of credits. It’s wise to have a backup plan already before the need for funds arise. You will be asking for trouble if you wait till you’re experiencing a cash flow disruption before applying for loans as few banks will readily lend money to a business in trying times.
- Pay bills only when they are due
A business that aims to have a sound cash-flow system should maintain timely payments. Pay bills only when they are due and not before or after. Instead of making a purchase on credit when the business is having problems with cash, managers should instead ask for a cash discount. The seller is more likely to offer a discount when he knows you will be coming along with cash. If you’re buying in large bulks, this could be of great benefit to you.
- Boost your income
It is sometimes easier to bring in more money to your business than to cut back on expenses. There are various routes you can take to boost your income. First of all, you need to ensure you don’t have any unnecessary deductions. Are you using the insurance plan that you are paying for? You can always save money by downgrading to a lower tier. The contributions you make to charity organizations; can’t they be stalled till you get back on stable waters? Once you’ve sorted all of these out, you can then look for ways through which you can increase your income. Adding complementary products, doing a side business and so on.
You will be able to maintain a strong and positive cash flow when you run your business with these seven tips in mind.