In any business, cash is the lifeblood that keeps everything afloat. If your money is poorly managed, your company will not only fail to grow, but it might implode and become one of the high percentages of failed businesses. One cash flow problem in business is the time between paying suppliers and employees and the time you’re collecting most from your customers.
In four relatively simple steps, you can work to keep better track of your cash flow and streamline the process to aid in company growth.
Step One: Cash Measurement
It might be tedious, but it’s important to work on cash flow projections. You should not only project cash for the year, but go further into the process and project earnings by the quarter or even by the week.
Why? This will help you get a glimpse of the future. This process is different than other statistical analysis you’ll do. This isn’t the almighty crystal ball; it’s just a tool to help you make an educated guess.
Add your cash on-hand, the projected cash to be received, and gather input from service reps, creditors, salespeople and others in your finance department. The question you’re trying to answer is just how much cash you’ll receive in total.
Next, you’ll need to accurately project how much of the income will be spent. You’ll have to know what the money is being spent on, why it’s being spent, and how much will be left (profit). This includes rent, taxes, inventory, salaries, benefits, equipment, utilities, and other bills and expenses.
Step Two: Improve on your Company’s Receivables
You’re not always getting quick cash for every product sold in business. Basically, you want to use the information from your projections to help to streamline the money you’ll receive i.e. you want to get paid quicker.
You can turn your receivables into quicker cash by offering discounts to customers paying up front. You could also require deposits, credit checks, and track the accounts of slow-paying customers.
Then the idea is to shore up your cash flow by getting rid of old inventory as quickly as you can. If this means discounting the lot, then go for it. You want your business running fluently so it can grow.
Step Three: Improve on your Company’s Payables
Increasing sales and growing your business isn’t enough to sustain the growth. You also have to keep a watchful eye on all of your expenses. Expanding and streamlining your business will most likely result in areas with fast-growing expenses. It’s imperative you recognize this and put a stop to it.
One of the first things you can do is stay in line with your creditors’ terms. Some people like to jump the gun when they have cash. They’ll pay after two weeks instead of after a month. Use the full month to your advantage here and do not pay until a payment is due.
You should also learn to use technology to your advantage at every step. If you can pay your bills electronically, then set a tight schedule for payment and take care of it quickly.
As with most aspects of business, communication is important. Build up trust in your business relationship by informing all suppliers and creditors of your financial situation.
You can also start to discount shop once you’ve streamlined this process. Of course, you don’t want to go around purchasing the cheapest products available, but looking closely at discounted or wholesale rates is a wise move.
Step Four: Shortfall Survival is Key
Even the best businesses falter at times and end up on the short end of the stick without enough new money to pay off bills. The best way you can survive a shortfall is to follow the rest of the process carefully.
Hopefully, you’ll predict the shortfall coming at least a week in advance by handling your projections properly. This will allow you to get the funding from good sources.
Nobody wants to lend money to a panicked businessperson needing the money right away. Contrarily, a businessperson who predicts the shortfall and seeks out help through a bank or a supplier is taken seriously and is usually given help.
If you follow these four steps, cash flow shouldn’t be a problem at all. Even the worst storms won’t tear the house down if you’re always thinking ahead in the process.