Posted by Shivali Anand
October 7, 2021 | 4-minute read (685 words)
The ability to successfully manage cash flow is frequently the difference between a company that survives and one that folds. Any firm that builds and maintains a sufficient cash reserve enjoys the most flexibility.
More than ever, the ancient adage "cash is king" rings true. As companies seek to reduce the effects of the coronavirus epidemic, there are a few practical actions you can do as an entrepreneur to understand better, manage and optimize your cash flow.
Make a profitability assessment
To begin, determine which aspects of your business are the most lucrative. Examine each product and service independently to see whether it generates a profit. Make sure all your items and services are priced appropriately and reduce inefficiencies. Concentrate on the verticals that are most likely to result in lucrative sales.
Make cash-flow projections
Prepare cash flow estimates for the coming year, quarter and even week. This will assist you in determining what adjustments need to be made and when. Use the predictions to predict sluggish times and devise a strategy for dealing with them ahead of time.
You might begin with cash on hand and gradually increase the amount due from clients on specified dates. Then deduct the anticipated expenses. After you've created a simple cash flow prediction, compare it to your actual cash flow. If you don't have the money you expect by a specific date, attempt to discern why. This can assist you in keeping a record of your spending by revealing expenses you aren't already accounting for.
Nonperforming capital assets should be liquidated
Do you have old inventory or machinery that you no longer use? To get quick cash, consider selling these goods and capital assets. Alternatively, if you need to purchase large-ticket products, consider leasing to avoid accumulating debt in the future.
Collect receivables as soon as possible
In a perfect scenario, you would be paid immediately after making a transaction and never have a cash flow problem. Though this isn't always the case, there are certain things you can do to enhance your cash flow by carefully managing your receivables. Send out bills quickly, urge customers to pay online, give them incentives if they pay early and penalize late payers.
Invest in accounting software
By investing in software solutions available, you can enhance cash flow managing, tracking and forecasting. Cash flow forecasting reports are incorporated into cloud-based accounting software like QuickBooks. Others, such as Sage One, include cash flow management add-ons.
When you need money, you can get a loan
Taking out a short-term loan from a financial institution might help with cash flow issues. Keep an eye on your company credit score so you can obtain a decent deal on loan.
Obtain business credit cards
A company credit card might be used to get cash in a pinch. Look for a card that offers perks like points that may be used for vacation or business expenditures. In addition to providing a safety net during difficult times, such credit cards allow you to classify your purchases, making it easier to keep track of your spending.
When possible, set up a rainy day fund
You'll almost certainly run into cash flow problems at some time, but how you handle them will determine whether your company survives. A sufficient financial reserve for unanticipated crises or situations will assist in alleviating tension and soften any blows. It is an excellent way to keep at least three to six months' worth of cash on hand as a reserve.
Innovate to increase sales
You'll need more sales if you require more money. Getting new consumers, on the other hand, requires time and money. It's cost-effective to sell more to existing consumers, and you can do so by studying what they're buying and why. Use this knowledge to boost your profit margins and, ideally, your cash flow.
Come up with cost-effective strategies to boost sales to keep your customer acquisition expenses down. Offering referral rewards or sponsoring competitions are two innovative methods to improve sales rapidly. Such efforts can help you not only increase revenue but also improve company reputation and attract new consumers.