Maintaining a healthy cash flow is essential for the success of any small business. Here are seven simple strategies to help you optimize your cash flow and keep your business running smoothly:
1- Understand your break-even point.
The break-even point is the minimum amount of sales you need to pay your expenses. Knowing this helps project future cash flow, making it easier for entrepreneurs to determine if their business is profitable.
2 – Shorten the Accounts Receivable Cycle.
A B2B payment behavior poll shows that 49 percent of United States companies’ invoices are past due. To increase the likelihood of timely payment:
- Invoice promptly and track receivables carefully.
- Consider deposit requirements, especially for new clients or big purchases.
- Have the Accounts Receivables (AR) manager review the AR weekly to stay on top of receivables. They can notify clients when an invoice is about to be late and also track past due receivables.
- Accounting software is an ideal option for tracking AR. (QuickBooks Online, Freshbooks, Gaviti, Wave, and more
3- Manage payables strategically.
Cash flow is essential for businesses; options to maintain a strong cash flow include paying invoices on or close to the due date and asking suppliers for extended terms from 30 to 45 days to free up available cash. With accounts payable, the goal is to increase the size of the asset – available cash – while maintaining a solid credit rating. It will help your business run into fewer unexpected cash flow problems, as you can cover operating costs regularly without any additional cash.
4- Consider early payment discounts.
Paying early for discounts can save you money in the long run, even if it’s just 2%. Take advantage of the incentive! Only if it will help your bottom line and improve your cash flow – But before deciding to pay two weeks ahead for a (5%) discount, compare the savings against potential expenses to avoid surprises.
5- Tighten credit terms – a little.
To get cash sooner, make minor changes like increasing your deposit requirement from 10% to 12% or reducing payment terms from 30 to 28 days. Your customers likely won’t balk at minor adjustments; moving from net 30 to 15 days may push good customers away.
6- Gain insight.
By monitoring your finances regularly, you can quickly identify any shortfalls before they happen and make necessary changes to ensure that money goes out when it should be. Creating 12-month projections every month will always give you plenty of warning to avoid finding yourself low on cash.
7- Get rid of outdated or excess equipment.
Selling your old equipment is a great way to get some extra cash and invest in something more useful. You can also consider leasing out your devices instead of buying them, which will give you the latest technology which is more energy-efficient and save you money on energy bills.
Applying the abovementioned strategies will help you monitor your business and improve your cash flow.
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