If everything from sales to growth is going great in your business, you better not let your guard down before you are through with the cash flow problems as well.
Yes, you read that right. Even highly profitable businesses can encounter cash flow problems if they are not focusing on the efficiency of their financing, operating, and investing activities.
Your business’s creditworthiness can drastically suffer if your payables are due before your receivables, making you unable to pay off your debts in time. Also, with a low inflow of cash, you will not be able to pay your employees.
Then again, having a reduced cash inflow is not the end of the world, and you can take the following suggestions into account to improve cash flow of your business.
- Be Careful with the Credits
When you sell goods on credit, there is a chance that your customers will pay you back way later than you need the money. Therefore, no matter how friendly you are with your customers, send them invoices as soon as you deliver the products.
Also, ensure that you conduct a thorough credit check on your customers before you let them purchase your products on credit. This will decrease the chances of the writing-off sales as Bad Debts.
When you know that the customer has a bad credit report, but you desperately need to make a purchase, you can escape the losses by establishing a very high interest rate.
- Give Discounts and Other Incentives
If you are supplying raw material or products on a credit basis, you can ensure timely payments by giving discounts on cash payments within a week or introducing other similar offers. Such schemes will not only ensure that you will get your money back but also get it back in time.
- Lease Capital Assets Instead of Buying Them
When you are planning to expand your business and want a building for setting up office or land to set up manufacturing, purchasing property can put a significant burden on the liquidity of your business. Therefore, we would advise you to adhere to leasing. In this way, you will have enough cash to run the day-to-day operations of your business smoothly and prepare payrolls. Plus, lease payments come under the head of business expenses and can be conveniently written off.
- Discover New Sources of Income and Increase Sales
There is a multitude of enterprises who have created a positive inflow by innovating their product or exploiting new demographics to increase sales.
You can also do so by adding a new service or product to your Sales Performa, which is in line with your current business and won’t require too many additional changes. For instance, if you are manufacturing instant coffee, you can venture into the production of instant green tea, tangy drinks, and milk as well.
Or, you can target a lower income group by manufacturing and offering the same instant coffee in sachets.
Getting the word out the right way is also crucial for positive cash flow. By creating adverts that target different customer bases, you can expand your clients, resulting in lesser defaulters and more sales.
Create attractive offers and schemes for your loyal customers so that they are encouraged to buy more and remain faithful to your product in the long run. Introduction of a referral programme will also help you spread a positive word of mouth about your product.
- Cut Back Operating Expenses
If you want to improve cash flow- as much as you need to increase your sales, you need to reduce your expenses too. For this, you need to go through the production process thoroughly and discover the processes that are redundant and eliminate them.
Also, you will have to cut back on the wastage of raw material by introducing new processes and equipment. This might look like an investment in the beginning but will require you to buy lesser raw material in the future.
Furthermore, it is not only the cost that needs some cutting, but you also need to streamline your business processes to cut back on time too. If no process seems worth eliminating, figure out ways in which you can make it speedier so that less time is invested in doing the same job.
When purchasing the stock of raw material, make sure that you negotiate with the suppliers and pay the least possible amount. For this, you can make bulk purchases and make timely payments. This will increase your creditworthiness in the eyes of the supplier, and they will happily give you discounts.
For making bulk purchases when you don’t need that amount of raw material, you can form buying corporative with other businesses involved in the same industry.
- Manage the Inventory
When you have heaps of inventory lying around and no buyers, not only a huge sum of money is tied in it, you are also losing money on its safety and warehousing. Therefore, we would advise you to make purchases and send the raw material under production only when you are sure that it will sell. If some products are not selling well, stop producing them.
Moreover, if you have inventory which won’t sell, don’t waste time retaining it and sell it at discounted rates to get some liquidity out of it.
- Avail Discounts from Suppliers
When you are dealing with suppliers regularly, communicating with them, and know how to haggle with them for the best price, you are in for higher cash flow. Also, if you promise to make the cash payment well in time, they might offer you discounted rates already.
- Experiment with Pricing
When you are struggling with cash inflow, no matter how scary it sounds, try increasing the prices of your product. Even though your customers might take some time to accept the new prices, if your product is good enough, they will eventually pay.
Now that you know what it takes to improve the cash flow of the business and how profitable it can be in the long run, you can also try the above strategies and make big bucks!