Has your business ever had trouble paying vendors, making loan installments or meeting payroll requirements due to cash flow issues? You’re not alone! Cash flow management is one of the biggest challenges that small business owners face. Though every business’s needs are unique, the following are some strategies that may improve your company’s cash flow position and ease the strain on your working capital.
- Ask for a deposit: If your product or service requires considerable cash or effort before delivery, consider asking clients for a deposit.
- Examine your debt collection procedures: Be prompt with your collections and follow up on past-due accounts receivable by sending reminders. Offer a discount for early payment of invoices.
- Cut and/or delay expenses: If your company manufactures products, consider using lower-cost inputs to deliver the same goods. If you are a service company, opt for spending less time on the same work. Exhaust existing inventory before purchasing more. Hire part-time or contract employees to replace full-time employees.
- Get a business credit card: Choose a card that rewards with points that can be used for travel and business purchases. Many cards come with innovative reporting options that illustrate spending trends to help business owners optimize their cash flow.
- Get creative with marketing: Instead of expensive radio, TV or newspaper ads, opt for a less costly social media marketing campaign.
- Restructuring your terms with vendors (an extra week or two for payments) can make a substantial difference. Once you have reached an agreement, be timely and dependable with your payments.
- Finance purchase orders: If you’re a manufacturing or merchandising company and you require a significant amount of cash to fulfill your orders, financing purchase orders may be helpful. The financing company pays the vendor so you can acquire the merchandise/inventory you need to fulfill the order. This allows you to take large orders that you don’t yet have the cash to fill.
- Increase margins: If your business has a unique product/service or a high demand for your product/service, consider increasing your margins by increasing your charges.
- Sell or lease idle equipment: Utilize eBay or Craigslist to sell redundant or idle equipment and use the proceeds to ensure cash flow.
- Sell future revenue: Consider taking a loan that is automatically repaid via a percentage of your business’s credit/debit card transaction volume.
- Turn down, shift or postpone work to manage the volume of business for consistency over time. Offer good clients a discount for postponing their work, order or service. This will not be a viable strategy for companies with strong seasonal businesses (retailers, accountants, etc.).
- Invoice factoring involves selling your invoices (an asset) to a factoring company. Instead of waiting 15, 30 or 60 days for your money, your business gets payment upfront.
- Hire an accountant: A Chartered Professional Accountant will have the knowledge and experience to offer you creative solutions to your cash flow problems.
- Restructure payroll: Switching to a less frequent pay period can save on administrative costs (collecting, verifying, tabulating information). Direct deposit can also help stabilize your payroll withdrawals.
- Borrow money before you need it: When your business is doing well, open a business line of credit. Interest rates can be as low as 6 to 7%. Ask for more than you need so you have reserves to draw from when times are tough.
- Evaluate your cash flow on a regular basis. Calculate how much debt you can take on and not be overleveraged. Factor in time, interest, ROI. Have a repayment plan in place for borrowed money. If possible, maintain a rainy-day reserve in case of an emergency.
- Take advantage of technology by using apps and software to streamline your business processes and increase efficiency. Technology can enable you to spend less time worrying about cash flow and more time running your business.
Working capital is the fuel that powers small businesses. Managing cash flow is critical to running a profitable long-term business. Constantly look for new ways to improve cash flow management in your company.
Looking for ways to examine and improve your cash flow? Contact Cook and Company Chartered Professional Accountants. Whether you operate a sole proprietorship or a sizable corporation with multiple subsidiaries, Cook and Company uses their experience and expertise to help your business. Contact us for a complimentary consultation.