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As we start the new year have you looked at the cash flow of your business lately?
Healthy cash flow in your business is imperative for success. No matter how rapidly you are growing as a business, if your cash flow isn’t on track – there’s every chance that it’s hurting your business.
If you are continually finding yourself unable to pay your debts on time, you might have a cash flow problem. Read on to understand some techniques that will help you to improve your cash flow:
Enforce payment discipline
Being unable to pay your debts could be because you haven’t received your own payment yet! This is such a common issue with businesses as they lack set procedures that encourage prompt payment from customers. Have fixed processes in place to collect outstanding debts from customers – chase them up and remain vigilant in this process. You could even change your payment terms to be shorter or have incentives in place to encourage early payment. Perhaps you receive late payments due to disputes regarding your invoices. If this is a regular occurrence, identify why your invoices are unclear and find a solution immediately so that future payments can be made promptly.
Improve your inventory
Don’t purchase additional stock just to be held in storage – keep note of inventory throughout the year to track trends, and wave goodbye to the stock that isn’t selling. As long as you are storing goods that aren’t selling, you have tied up your cash and risk not selling the goods at all. Quit stocking anything that doesn’t sell at the same pace as your other products and use that cash to free up your flow. You might think that you are offering the customer a more diverse range of products, but if nobody is buying it, no one will miss it.
Forecast and monitor cash flow
By forecasting and monitoring your business’ cash flow, you will be able to anticipate when there will be a cash shortage. Being informed prior to the shortage will allow you to react promptly and find a solution before it becomes a bigger problem. Sorting a line of credit with your bank will allow access to funds if and when you need it, meaning that the cash flow shortage can be handled appropriately. To effectively monitor your cash flow, ensure that you are keeping your financial records updated so that you are aware of all debts – especially if a burst is due around the same time.
The ramifications of having poor cash flow, and thus being late to pay your suppliers, can be extensive. Be sure to avoid the cash flow crunch by implementing strategies to improve it. Remember to remain vigilant when chasing payments, not to store stock that doesn’t sell and to be proactive with any issues you have foreseen. This will have you on the road to a great cash flow in no time.
At Verve Group we have created our innovative Grow Your Business (DNA) program to help you unlock the full potential of your business – maximising financial return and ensuring optimal business performance. For more information, click here or give us a call on (08) 8120 4877 or email us at: contact@vervegroup.com.au