How To Improve Cash Flow For Your Business
Cash is the blood of every business activity. Without cash it would be very difficult to operate your business. It’s necessary for business success that you keep an eagle’s eye on the cash flow right from the beginning and avoid falling in a situation where you run out of cash. So, let’s see what you can do to improve the cash flow for your business.
Collect Accurate Data: This is the most important step in improving your cash flow. Without proper information you will always be struggling with your cash flows no matter how good you do in generating sales. Accurate forecasting of the revenues and expenditure is very important. This will provide as the tool to handle all other steps in handling your cash flow.
Know your Cost: You need to know what the exact cost of a particular project would be. If your costing is not proper, you will soon land up in cash flow problems.
Don’t sell at low margins : It has been seen that many a times a company give an ultra-low quote for a project or an enquiry in order to procure the job. This should be avoided. I don’t tell you to quote very high but always a research needs to be done for the pricing by studying the competition. Once you know the prices of the competition then you can quote a better price along with keeping a healthy margin to cover your cost of goods and the operational expenses.
Negotiate with your suppliers for better terms: Everyone wants business and if you are able to build the trust with your suppliers, they would be more than happy to help you out and offer the maximum credit terms from their side. Negotiation for the credit terms can be done right at the start or even after a few deals are over successfully.
Offer cash discounts: Instead of taking credit from the bank, its wise to offer cash discounts to your customers for immediate payments. If your customer is cash rich, they will immediately agree as this brings their cost down and your cash inflows will be boosted.
Reduce your paid-up stock: Paid up stock means the inventory in your warehouse for which you have already paid your suppliers. This should be avoided to the maximum. With proper supply chain management, you should be able to bring down your paid-up stock to the minimum and this will prevent any blockage of cash in the stocks. Big paid up stocks are a dangerous sign as sometimes these stocks are just lie in the stores without any moment for years, blocking valuable cash.
Sell off your redundant stock : Every six months do a proper stock analysis to note down which stocks are not moving and can be safely sold off at a discount or in scrap. This step will not only bring in the cash for you but also will free space for important goods to be stocked.
Improve your operation cycle: When I say operation cycle what I mean is that the flow of work in the operations needs to be monitored very closely as delay in the operations than the estimated time will raise your cost which most of the times go unnoticed and is highly dangerous. Operations should be closely monitored so that the jobs in hand are done on time with the correct costing. This step alone might sometimes increase your revenues by more than 20%. I have observed in my 27 years in business management that many a times a business suffers not because its sales team is not capable in bringing in the sales but mainly due to the nonperformance of the operation department.
Proper invoicing: This is very important aspect as your customer needs to register your invoices in his system to release your payments. Invoices should not be delayed and if possible, invoices should be released immediately to your customers along with the delivery of goods.
Payment Reminders: Your accounting department should be strong in follow up for your payments. A system for the follow up of client’s payments should be in place with your accounts department. Nobody likes to be nagged but the person sending the timely reminders normally are the ones in the memories of the customer finance department and so they well remember to release their payment at top priority.
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