There’s nothing like a cash crisis in your business to make you take a hard look at how efficiently cash flows through your company. But don’t wait until you’re panicked about cash to improve your cash flow. You can and should take steps now to improve the financial health of your company.
Here are three simple ways to keep more cash in your company:
1. Manage your expenses.
Create an expense report and review every item. You’re looking for ways to reduce the amount of cash you’re paying out. Begin by eliminating expenses that aren’t entirely necessary. Become frugal but don’t endanger the business.
Find suppliers with lower prices and better terms. Try to negotiate better (longer) payment terms with your suppliers. If you’re a startup, you may not have a lot of negotiating power, but existing businesses with good payment histories might be able to get better payment terms, preferably 30 or 45 days. Pay on time, but never early.
2. Manage your revenue.
Just as you’re managing how you pay suppliers, you need to manage how your suppliers pay you. Take a close look at the terms you extend to your suppliers and how those terms impact your cash flow. How many days did they take to pay you? You can provide incentives and discounts to suppliers for paying earlier, but be careful to monitor how much you might lose by offering discounts.
Make it as easy as possible to get paid: accept credit cards, setup PayPal or use Square for on-the-spot credit card payments if at all possible.
Know how much suppliers owe you and don’t delay talking with them to setup a payment arrangement. Cut off slow payers until they become current—it’s o.k. to fire customers that become a drag on the system.
Are there seasonal fluctuations in your business that you need to take into account? Anticipating cash flow during high and low selling seasons is crucial to stay ahead of cash crunches.
3. Manage your inventory.
For a products-based business, a lot of your cash goes into buying and maintaining inventory. How well do you control your inventory levels? Do you know, at any given time, how much inventory you have for each product? Having the right amount of inventory for expected sales is your goal. Don’t keep unnecessary levels of stock on hand—only what you need. There’s no sense in paying for inventory that just sits in the warehouse. This technique is called ‘Just in Time’ inventory management, or JIT. Learn more about JIT to manage your inventory more efficiently.
Staying informed of your situation and anticipating cash flow needs is the best tool you have to manage your company’s cash flow. Don’t wait until you’re panicking! Be proactive, write a cash flow report and do everything in your control to maximize your cash.