With a good idea, dedication, and good funding, anyone can open up a business. However, starting and managing a business is not the same thing. To ensure a business stays afloat and prosper, it needs a steady supply of cash and other resources. That’s one of the reasons why cashflow management is a very coveted skill. Here are some tips to consider when managing your cash flow.
5 Tips To Effectively Control Your Cash Flow
1. First Of All, PLAN!
Even experts have some difficulties in projecting when a financial disaster will happen. But even if the economy slows down and sales stagnated, the business would still need to operate to survive. An emergency cash reserve would be a convenient financial cushion. This fund will help a business owner keep the boat afloat while searching for ways to improve the current situation.
2. Encourage Clients To Pay Early
To ensure that you always have cash in your hands, consider setting policies that encourage customers and clients to pay early. Hence, creating and using a simple payment system is essential. Your client will likely pay faster if there are no overly complicated payment policies. Additionally, you can offer discounts and promotional sales. This move achieves two things: build customer loyalty and a steady inflow of cash.
3. Monitor Cashflow Regularly
With hundreds or even thousands of transactions per month, it’s easy to lose track of money. If you don’t monitor your invoices and track your cash transactions, how would you know if you’re earning or losing money? Are you even reaching your break-even point?
Although monitoring cash flow is essential, the business owner doesn’t need to focus on it. Fortunately, monitoring cash flow is easier than ever due to automated services and software. This way, you’re still on top of your cash flow while focusing on other things, like your next marketing strategy.
4. Prioritize Cash Flow Than Profit
To most people, businesses are always about getting profit, and it’s true in most cases. But for a business to be profitable and successful, there should be a good insight on handling cash flow. By just looking at a business’ cash flow, you can tell a few things about its financial situation.
For example, a business with more inventory than cash receivables might have a problem selling their product. It can also signal a problem in setting up an effective payment term with clients. A good businessman always ensures a steady stream of cash inflow and reduced cash outflow to become profitable. A 50% markup isn’t worth it if no one’s buying your stuff.
This takes us back to item #3: monitoring cash flow regularly. An accurate cash flow monitoring system can help a lot in making decisions. It also tells you if you’re lagging behind your cash flow goals.
5. Get Partial Payments For Longer Contract
And lastly, set a partial payment system if your business deals with long-term contracts regularly. This move ensures that you have the cash to run your business while working with the long-term client. You don’t have to put in additional investment or take a loan to continue operating before a large contract payout.
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