“Revenue is Vanity, Profit is Sanity, but Cash is KING” - Alan Miltz.
All business owners want their business to be successful, and one of the key elements that will lead you to success is “Cash Flow”.
Cash flow is a measure of how much cash a business brings in or spends in total over a period of time, and it is one of the important indicators of a business’s financial health.
What is Healthy Cash Flow?
Healthy Cash Flow, aka Positive Cash Flow, means the company’s cash inflows exceed its cash outflows. Positive cash flow indicates that the company’s liquid assets are increasing, and it is essential for a company to survive and grow sustainably.
Ways to Improve Cash Flow of Your Business
Improving cash flow can be challenging for companies, especially SMEs, and here below are some tips for you:
1. Improve Your Inventory Management
Purchasing inventory requires the use of cash, and the cash will come back only after the inventory is sold. Too much inventory will tie up your cash, and harm your cash flow. To avoid this unpleasant situation, you need an effective inventory management system to ensure accurate and real-time inventory forecasts.
2. Maintain Good Relationships with Your Suppliers
With strong relationships with suppliers, you will have higher chances to secure better payment terms. That means you can keep more cash in your pocket, and increase the flexibility of your cash flow.
A good relationship can also help to stabilize your product supply, maintain reliable delivery time, and reduce processing time, which truly benefits your business by minimizing operational risks.
3. Lease, Don’t Buy
Buying equipment and assets can cost you a lot of money, which is not easy for a company, especially for those newly established. To reduce the up-front costs, you may consider leasing equipment and assets, which allows you to make smaller payments and reserve your cash.
Another benefit of leasing is that you don’t need to worry about the costs of repairs and maintenance, as many commercial lease agreements include servicing, which helps to minimize your maintenance expenses.
4. Send Invoice to Your Customer Immediately
You can’t get paid unless you send an invoice. The faster you can send invoices out, the faster you can receive cash. So, please make sure that you always invoice your customers in a clear way and timely manner.
To have your invoices paid as quickly as possible, you should closely monitor and follow up on the payment status of each invoice, and remind the customers to pay the invoices before the due date.
5. Increase Price
In order to balance the increasing inventory and operating costs, you may consider raising your prices. Otherwise, you may suffer from cash flow problems.
However, you should conduct market research before raising prices to ensure your competitiveness and notify your customers in advance with a reasonable explanation.
6. Cut Unnecessary Expenses
Cutting out unnecessary expenses is one of the ways to reduce your cash outflows. You should evaluate your spending from time to time to make sure that all expenses are necessary and the most economical, and cut all unnecessary spending to plug cash leaks at the source.
7. Use Cash-Back Credit Card
A credit card may be an effective tool to improve your cash flow management if you use it right. A cash-back credit offers you a chance to earn cash from your spending, which may help you save some money.
However, using a credit card only makes sense if you always make your payment in full before due and never go over your credit limit. Otherwise, the penalty and interest will outweigh your “earnings”.
All-In-One Financial Management System
You may have some ideas on how to improve your cash flow now, but how to carry out the cash flow management in a systematic way? Implementing an All-In-One Financial Management System may be the answer.
Contact us today and we will provide you with professional consulting and technical assistance.
Linkage Solutions: https://www.linkage-retail.com/netsuite-cloud-erp
You can reach us by:
WhatsApp: +852 3157 1384