Does Your Company Have a Healthy Cash Flow?
Many business owners don’t understand the importance of a healthy cash flow. Your company may be profitable, but unless the income exceeds expenses, the business is doomed to struggle, founder, and ultimately fail. Good cash flow management involves careful tracking of incoming and outgoing funds on an ongoing basis as well as weekly, monthly, and quarterly cash flow projections. Here are some steps you can take to improve your business cash flow.
If your business is experiencing negative cash flow, which means you have more outflow than inflow, your first impulse may be to reach out and acquire new customers. However, it is much less expensive to attempt to increase sales to existing customers. Undertake an analysis of what clients are purchasing and why, and you may be able to use this information to generate further sales. However, if your cash flow needs to be stronger, be sure to focus on customers who pay promptly.
To enhance your cash flow, make it easy for customer to pay their bills. To enable rapid payment and processing of receivables, set up payment methods such as preauthorized checks, depository transfer checks, and lockbox accounts. Additionally, consider offering discounts to clients who pay early. Although this may slightly impinge upon your profit margin, it encourages customers to speed up making payments, which helps your cash flow.
Be Careful With Credit
Increased sales don’t aid cash flow if they are made on credit, especially if the clients have a history of slow payment of bills. Before you offer credit to customers, have them complete applications and furnish references. Obtain copies of their credit reports from credit reporting agencies. Consider accepting credit cards, which is a less risky credit option.
Take Out a Loan
Sometimes company shortfalls must be met by securing a line of credit, equity loan, or long-term amortized loan. If possible, establish a relationship with a financial institution before you need an infusion of cash.
For more advice on creating a healthy cash flow for your business, contact Desert Star Commercial Consulting.