How to increase your cash flow to reduce the stress of running your business
For many entrepreneurs, one easy measurement of success is having cash in the bank. But cash cycles can be brutal. When the cash you have in the bank is low, your business stress rises.
However, there are ways to smooth out those cash flow cycles and reduce the stress of watching the bank balance.
Know your aging report (or in some cases, start one). Account Receivables (A/R) Aging Reports divide customers into 30-day buckets based on how fast they pay you. For customers who are continually late, institute advance deposits or COD terms. Also, on new receivables, you can add late fees as a penalty late payment. For large customers, a prompt payment discount (2%-10 days) can bring faster payment. In addition, you can encourage all your customers to move to ACH or electronic payments.
Know your payment terms, and make sure you are using them. Net-30 is like an interest-free loan for 30 days. If you are in an industry with longer product cycles, ask your suppliers for longer terms. Set up your payables so that invoices are paid on the due dates. Similar to A/R, if your suppliers offer early payment discounts, take advantage of them. (Using electronic payments for early payment can preserve cash as long as possible, and those without discounts can be paid by check.)
Inventory can be a tremendous cash drain. Managing inventory levels can potentially free up thousands of dollars in cash flow. Analyze your inventory and, where possible, manage items to the most efficient levels. For example, if it takes 30-days to receive inventory, keep only a 30-40 day supply. If you have slow-moving or obsolete items, sell them at discounted prices. You will benefit from both the cash recovery and the reduced cost of storage.
Talk to Your Bank.
If you have a cyclical business, a revolving line of credit can be a way to access cash during down cycles. Analyze your cash flow cycle and your needs at the low points. Being able to show your bank how your cash flow works can help them put together a plan for a line of credit. Banks also offer lockbox services and other remote deposit options that can speed up cash availability.
Operating costs and overhead.
Expense management can free up cash, as well as increase your profits. Reviewing expenses and even procedures can uncover expenses that are inefficient or no longer necessary. Utilities are often an area where expense creep can happen over time and bringing in a cost reduction specialist can yield cost savings.
In a growing business, managing the pieces of cashflow can sometimes be overlooked. A few simple steps can help reduce the stress of watching the bank balance and allow you to focus on building more success.