Many people believe that managing cash flow is a matter of accountants. That is not true at all. Every entrepreneur who wants to make his business thrive on the marketplace should understand and apply the instruments allowing manage cash flow in the most efficient way. It is true both for tiny startups fighting fiercely every day to become more competitive and large companies with a long history and established position on the market. Even small niche businesses like the online store Invertero.com need a proper cash flow management to survive among the more powerful competitors.
Statistics shows that up to 90% of all small businesses fail and one of the reasons is a poor cash flow management. In fact, incoming and outcoming cash flows change all the time. The only way to cope with the continuous fluctuations is to accept the fact and deal with them.
To make the idea simpler, we prepared five tricks that may potentially help you.
1. Follow a cash flow budget
The basic principle here is that you need to monitor constantly the available funds as well as the funds you owe and the money other people owe you. Having this in front of you, it’s easier to plan expenditures and incomes. Our advice is to have the calculations not in your mind but in a spreadsheet or even in a specialized software.
If it’s hard for you to organize the whole process, ask the professional to help and consider the money spent on his services an investment that will bring benefits in the future. Cash flow budget is used to track all your receivables, bills and sales. Having a clear understanding of the cash level at any given moment will help you remain solvent.
2. Don’t confuse profits with cash
To run an efficient business, you need to stay focused more on cash flow than profit. The amount of money you dispose of now is not an indicator of your success. Many profitable companies demonstrate negative cash flow. Simply put, cash flow is always connected with time. Today you have a decent amount of money but what about the future? What about depreciation, operating costs, payment of interests? Thinking of a total profit is no good. You should think about cash flow you’ll have in the future periods.
3. Improve the cash flow cutting expenses
Every sale involves certain costs. As an entrepreneur, you are obliged to know the amount of costs to the last cent. Budgeting will help you see what you are spending your money on. It also provides an opportunity to perform the detailed study and define the hidden reserves for improvement. Perhaps, you spend too much on unnecessary advertising campaigns or utilities? Or an unreasonable amount of money is frozen in inventory stocks? It frequently happens that businessmen even pay for services they don’t really need. Anyway, you won’t know it for sure until you perform the analysis.
4. Do everything possible to increase the amount of an average order
Selling more products to a single customer is a direct way to increase your profit. The idea is widely known but you should understand perfectly the demands of your clients to achive the goal. If you run an online store, take care of its user experience design to make it look trustworthy. Besides, HD photos of your products is a must! Also, make sure you apply a variety of creative marketing tactics. They usually include but not are limited to free shipping, newsletters, rebates, selling related items, etc.
5. Negotiate with your suppliers to get the best deal
Do you think your relations with the suppliers are reliable? Do you know each supplier well enough to negotiate the terms that suit you best? In fact, a few entrepreneurs can answer both questions positively. Understanding your suppliers is another key to the efficient cash flow management. For example, if you can convince a supplier to agree on a payment delay of 60 days instead of 30, you will definitely improve your cash flow. You can also have several suppliers for the same product to diversify the risks and negotiate more favourable conditions.