There are several cash flow tips that can help bring order to chaos so you can focus on the rest of your business. Managing cash flow in your business means keeping your eye on many things; chasing invoices, extending credit, managing your inventory... sound familiar?
Think about how effectively you're regulating the money flowing in and out of your business right now. Would you like to do it better?
There are a few simple cash flow management tips that will help get you started. Think of them as a health check you can do on your business every six months or so. Once you have reliable systems in place, you'll soon have a clearer picture of both where your business is now and the exciting areas you might invest in for its future.
1. Keep on top of your invoicing
The faster your receivables turn over, the more cash you'll have to spend on growing your business. Use a software program that allows you to automatically classify the age of accounts receivable – invoices fewer than 30 days, 30-59 days, 60-90 days and so on. This automated flagging system allows you to move quickly on overdue accounts without constant manual checking.
2. Stretch out your bill paying
Take the maximum amount of time allotted on an invoice to pay your suppliers. Think of these terms as an interest-free line of credit from your supplier. It gives you enough time to collect money owed to you without spending on short-term lines of credit. But always pay your suppliers on time – they'll love you for it.
3. Consider leasing instead of buying
While leasing generally costs more than buying, these costs can often be justified by the cash flow benefits. By leasing computer equipment, cars, or other tools that you need to expand your business, you may avoid tying up cash or lines of credit that might be better used for running your business day-to-day. Check to see if your lease payments could be considered a business expense, with tax benefits.
4. Be smart about new staff hires
Growth is a good thing, but it's important to understand the impact on your cash flow of hiring new staff. Would hiring them free you or other employees to focus on other areas that grow more revenue? What big expenses do you have over the next three months that might mean it's better to wait before you hire? Also, holiday pay for permanent employees can eat up spare cash quickly. It might be worth hiring casually first to make sure you have the right person for the job.
5. Check your pricing
Customers actually expect their suppliers to institute small, regular price hikes. So don't sweat about losing clients; just do it. Check out your competition to know where you're positioned in the market. If they're charging higher prices, it may be appropriate for you to as well.
6. Don't buy all in one place
Save money by splitting your suppliers. Sometimes it's worth paying more for good personal service. You may need a computer system that suits your business but you can buy items like cables, paper and printer cartridges more cheaply from warehouses or online stores.
7. Be part of a buying cooperative
Save even more money on supplies by rounding up a few fellow business owners and buying in bulk – perfect for things like stationery and consumables. Or join an existing buying group; your local chamber of commerce or industry association should have a directory.
8. Tighten your inventory
Overstocking can tie up significant amounts of cash. Make sure your existing inventory is within industry norms by calculating your inventory turnover ratio, i.e. the cost of goods sold divided by the average value of your inventory. Beware of suppliers offering big discounts as this can tie up your cash. When you have old or outdated stock, consider defering upcoming orders or selling at cost price to get cash flowing in again.
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This article represents the views of the author only and not those of American Express. The information contained in this article does not take into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness to your circumstances.