How Small Businesses Can Improve Cash Flow with These Simple Steps

Running a business, no matter how big or small, is not easy. There are plenty of challenges and not every business is the same or dealing with the same problems. There are a lot of things business owners like you need to consider depending on the industry you’re in. 

But when it comes to capital and expenses, it is more challenging for small businesses. This is why if you are managing or owning a small business, you must explore more ways to improve your cash flow, if you want to survive and thrive. In this piece, some of the experts from JMA Credit Control shared some valuable tips which can certainly help you grow your business:

How Small Businesses Can Improve Cash Flow with These Simple Steps

Organize your books

From expenses to profits, you must ensure that your bookkeeping is up-to-date and straightened out. It helps you prevent overdue payments that could lead to higher financing fees from your creditor.

With organized books, you also get to see how your expenses are doing, allowing you to analyze which of the following should be prioritized or should be reduced. It would also help you identify your outstanding receivables, cash-in/cash-out for the month, operational expenses, net profit and many more.

Allowing yourself to identify unnecessary expenses through organized bookkeeping could help you increase cash flow.

Consider risk management

It is true what they say that “prevention is better than cure.” Before making any investment or transacting with new clients or suppliers, you must weigh everything, manage business risks––from its importance (ROI) down to possible exposure.

If you are dealing with a new client or vendor, it is better to vet them properly through credit checks. It is better to know the individual or business you are dealing with before you actually enter into an agreement with them. It helps you prevent potential problems in the future such as unpaid transactions or failed shipment or delivery of goods and services.

You also get to have more accurate forecasts in your business when you deal with individuals or companies that would successfully deliver on their end, whether they are customers or suppliers. 

Make sure that your credit terms line up

Credit Terms

Credit terms with both suppliers and customers are often overlooked by smaller businesses. When this happens, your business is more exposed to deficits. Aligning your credit terms with different companies and individuals would also help you avoid a shortage of funds.

You can avoid having a messed up credit terms by checking every transaction you just signed and currently have. If there is a mess up, renegotiate your terms that would fit to your company’s capacity. You might also want to consider early payment discounts or rebates.

Avoid long-term payment options

If you can handle the expenses, it is better to pay them upfront or at least a large portion of it. It would save you a lot of money if you were able to avoid larger financing fees. It is also applicable to your customers. The longer you allow them to pay for something, you get slower returns, thus lower cash flow.

Consider automated payments

Missing payments usually mean larger interests from your creditor. It helps you avoid overlooking the payments that have to be made on a fixed schedule. Apart from your own expenses, you should also consider applying these to your customers. This way, they would also never miss a payment deadline and you are assured that you get paid on a fixed schedule that you are expecting.

Modern technology allows you, your customers and suppliers to make use of automation when it comes to financial transactions. Another advantage of automation is that you are able to double-check and confirm every transaction you made. You can also check them periodically if need be. Automation also helps you avoid overlooking any transactions. It is also less likely to be tampered with, which enhances not just security, but of your customers and suppliers as well.

Explore how you can minimize production expenses

Continue to research on how to minimize your costs––whether you are providing products or services. If increasing production would mean increasing your profit margin, then do it as long as you are able to afford it.

If there are unnecessary expenses when it comes to operations and production, analyze it. If you think your company can survive without it, then make the business decision to eliminate it. You could also consider looking for cheaper suppliers. If you think outsourcing a specific aspect of your operations would help you minimize your costs, then do it.

You know your business more than anyone else and if you are truly passionate about it, you would know what’s best for it as long as you are being logical in every decision you make. It is a never ending battle of pros and cons––which isn’t a bad thing.

By following some of these tips, you are not just increasing your cash flow, but you are also increasing the chance of your company to grow.

Richard Scott is a passionate finance writer and business coach who spends his time helping small businesses to eliminate debt and implement cash flow positive collection processes.

Author  //  Richard Scott

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