If you’re going to have a new year’s resolution for your small business it could well be to improve cash flow – the lifeblood of any business.
Smoothing the flow of money in and out of your business will ease your capital requirements, create a more predictable business pattern and make it easier to plan for growth. But this requires staying on top of every facet of your business, from accounts receivable, to lines of credit to inventory.
Here are 13 things you could do to increase your cash flow – some of them fairly simple, but nevertheless worth stating:
- Require payment upfront.
- Or, ask clients for 50 per cent upfront payment and the balance on completion.
- Offer the option of paying by monthly direct debit.
- Offer a financial incentive for early payment, such as a discount if they pay immediately or within 30 days.
- Pay creditors later – if you have 90 days to pay, make full use of that time.
- Look at the time between first contact with a prospect and the closing of sale. How could you reduce that gap? Are there hold-ups at your end?
- Make it easy to place orders by offering multiple channels, including online.
- Speed up your fulfilment with better human processes or more efficient systems. Identify where and why backlogs are occurring.
- Overstocking inventory can tie up significant cash. Regularly review the status of inventory and either defer upcoming orders to use up stock or take steps to get old stock moving to improve your liquidity.
- Consider leasing rather than buying – it may be more expensive but the cash flow benefits might outweigh the added expense.
- If your insurance premiums are significant, consider using the “premium funding” option, where you make regular payments than paying an annual lump sum.
- If you’re in a service industry, you may want to convert contract clients into clients who have you on retainer, smoothing your cash flow.
- Don’t let small cash-flow issues turn into big ones: get professional accounting advice as soon as an issue arises.