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Improving Cash Flow In Your Business

Poor management of cash flow is a major contributor to business failure, even if sales are relatively good. With all the financial needs of your business, failure to properly manage what is going in and out can be disastrous—it stunts marketing efforts, may damage relationships with vendors and compromises customer service to name just a few problems. The good news is, you can probably do a lot to help the situation if you simply take the time to assess what is happening, and formulate a plan of attack. Here are just a few tips to help you manage this crucial aspect of your business.

Taking Stock

This may seem very obvious,  but if you are struggling with cash flow issues, chances are, you haven’t stopped and taken a good, hard look at what is going on. We often have the illusion we are tending to this matter as best we can, but in reality, we aren’t. It is easy to slip into habits and not even see what is really going on.

So, this part may be a bit tedious, but it is necessary. You have to sit down and take stock of what is happening with your business. What are all your expenses? When are your various bills due, and when is the money coming in? Where are the ‘dry’ spells where you find yourself short? What is happening with your receivables? What could you do right now to improve the situation.

Perhaps you could delay paying bills until they are due rather than taking care of them right at receipt; could you adjust payment terms with your vendors to better match when invoices are getting paid by your customers? Is ineffective management of your warehouse negatively impacting your business? If so, you may want to look into supply chain solutions to increase efficiency.

You won’t be able to formulate an effective plan unless you know exactly what is going on right now.

Improving Receivables Management

One of the biggest reasons businesses struggle with cash flow is poor management of receivables. You would think such an important element of business—actually getting payment for goods and services rendered, would be tended to with proper fervor.

But, for a variety of reasons, it simply isn’t. Fear of alienating customers makes owners reluctant to broach late payments; poor record keeping leaves many in the dark about how late some payments are, and just how much money is outstanding.

First things first, if you don’t already ,invest in some good accounting software, like QuickBooks. Have a set procedure in place for dealing with past due invoices that is applied each and every time with consistency—the sooner you broach the issue, the sooner you get the money. Extend credit with care. Consider deposits or partial payments. Offer incentives for early payment.

Keeping Expenses in Check

Mindless spending is a big problem for businesses when it comes to cash flow. Not enough thought goes into purchases. There is no careful thought about whether something is really necessary at this juncture. Keeping expenses in check is crucial for new businesses in particular. Before you buy something, think about whether it is absolutely necessary right now or if it could be purchased at a later date. Perhaps leasing a piece of equipment is smarter than outright buying. Consider freelancers instead of hiring employees if there really isn’t a need right now. This simple act of thinking a bit before taking on a new expense can change everything.

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