Simple tips to improve your cash flow
Changing the payment terms on some of your bills can easily improve the cash flow for your business. Cash flow problems often cause businesses to go under because they are unable to meet their monthly financial obligations. This article will look at different ways you can improve your cash flow problems and start expanding your company:
Tip # 1 - Inventory
Many business owners lose thousands to millions of dollars a year on inventory. Keeping too much product on the shelf at one time will tie up your available cash. Do some analyzing to determine how much inventory you need to keep on stock at one time and clearance inventory that has been sitting on the shelf for awhile. Depending upon your business, you should try to keep about 3 months worth of inventory on the shelf at one time.
Tip # 2 - Billing
Another big mistake businesses often make is that they wait too long to bill their customers. Bill as soon as products leave your facility and make sure to send out multiple bills if you are having a difficult time getting the payment. Do not let your accounts fall more than 30 days past due, this will really hurt your business when you try to expand. If you struggle with invoicing and billing, sell your invoices to a factoring company and let them do all the dirty work for you.
Tip # 3 - Wait to grow
You should avoid borrowing money to grow your business. Try to forgo expanding until you have a sufficient cash flow to cover the cost of the expansion. Always have a small cushion to fall back upon while you are growing your business since you may experience a slight decrease in sales during this time.
Tip # 4 - Watch your bills
To improve your cash flow, change the terms on some of your bills. Pay your bills to credit card companies and other lenders as soon as you receive the statement. This will reduce the total amount you spend because the interest is compounded on a daily basis. If you pay as soon as possible, the interest rate will be smaller and your bill will also be smaller. Check the payment terms on some of your other bills like utility bills and supplier bills and stagger them. Normally you have 30-60 days to make these payments so this gives you plenty of time to stretch out your cash flow. Ask your suppliers if they offer discounts for early payment, this will save you even more money each month.
Always keep your suppliers on their toes by price shopping. It is actually recommended by HR Departments to compare insurance rates each year. This will help your company find the right insurance broker that can get you cheaper rates. Price shopping also inspires companies to fight to keep you as a client and many of them are willing to reduce their rates to keep your company. Price shopping also helps your business stay ahead of the game because you will know about the latest technology and other products that can help your company grow.
Tip # 5 - Price change
The other way to improve your cash flow is to raise your prices. Use the internet to search your competitor's web sites to see how much they are charging for their products and services and set your prices at or just below theirs. Bundling multiple products is a great way to get old inventory off the shelf and you can increase the price because customers will have the perception that they are getting more. Don't be drastic with your price changes or you could end up losing some valuable customers.