When you’re an entrepreneur running a small business, there is always a long list of things you have to concentrate on, from providing excellent customer service, selling the right kinds of products or services, leading a team, marketing effectively, and so on.
However, one of the most important areas you must focus on if you want your business to not just survive but also thrive over the years, is cash flow. Read on for some top tips on this subject you can follow today.
Set a Budget
One of the first key steps involved in getting your cash flow in order is setting a business budget. It is important to give yourself spending limits on each of the various areas in your business, so that you don’t end up not being able to pay your bills at the end of each month.
Creating a budget will ensure you really think about what you spend money on, and that each dollar is invested into things which will help your venture to grow. After all, it’s easy to get caught up in the excitement of running a business, or looking at what other organizations are doing, and thinking you need to follow suit. But not being vigilant about spending can lead to all sorts of problems over time. A budget is a great way to avoid this.
As well, when you set a detailed budget and work hard to stick to it each month, you will end up closely tracking the incomings and outgoings of your business. This will help you truly understand the financial position of your venture, and to see, much more quickly, where you might be paying too much for products or services, or where you’re investing money in things that aren’t paying off, such as particular marketing strategies.
Reduce Inventory Levels
For many businesses, one of the biggest things that affects cash flow is inventory. If you end up with a lot of products or parts sitting gathering dust in your warehouse, your cash flow will quickly be negatively affected, and this will in turn cause problems for you financially in other areas.
To combat this problem, start by analyzing the data you have on the sales history of each item in stock. If anything hasn’t been selling, it’s time to run a sale or look at alternative platforms where you might be able to move the goods quickly. You should also discount anything which is damaged or getting close to its use-by date.
After that, rather than only doing a single, annual stocktake to examine your inventory, try to get in the habit of looking over your stores every month or at least every quarter. This will help you to notice much sooner which items aren’t moving, and which you shouldn’t therefore order in again as a result. Note that there is plenty of great software on the market these days which can help you keep on top of your inventory management.
It also pays to be very careful about which new lines you order in as time goes by. Instead of just trying your luck with additional inventory, consider asking suppliers if you can return goods which haven’t sold within a set period. Alternatively, set up a pre-order system whereby customers can place an order for items in advance. This is a helpful way to test if there will be demand for a new product or not.
Get Access to Additional Funds When You Need to Grow
Sometimes cash flow becomes a problem not because you’ve been letting any particular areas slide, but simply because your venture is growing, and you need to invest a lot of money into things like buying an inventory up front; purchasing special equipment; hiring additional staff members, etc. When this happens, it might be time for you to get access to a loan or a business line of credit, or to consider a service such as invoice factoring or equipment hire or leasing.
Next, look at ways to prompt customers to pay you on time, so you get money flowing in more quickly, and boost your cash flow in turn. For example, always send out bills quickly after a product has been sent or service has been rendered; and show the due date and payment methods in large, easy-to-read font on your invoices, in a prominent spot so clients can’t miss the details. Furthermore, don’t give terms to people who don’t have a good payment history; send out regular reminders; and start charging interest once bills are significantly overdue.