Cash flow management is critical for the success of a small business. There has to be a healthy cash flow so that you can sustain the growth of the business and its stability. In this article, we will go through some strategies that can help you optimise cash flow.
You can get the assistance of small business tax accountants such as Oliluca accountants. They will be able to help you manage the finances of your small business. An important factor that will help you take proactive action against potential shortfalls or even surpluses is to create a comprehensive cash flow forecast. This will project your anticipated expenses and income over a specific period of time. This can be done monthly or quarterly. You have to monitor your actual cash flow against the projections to identify variations. Your invoicing process should be streamlined so that you can accelerate cash flow. You need to issue invoices immediately once services or goods delivery have been completed. This will help specify payment terms and due dates. You can also offer incentives for early payments or have automated invoicing systems in place to expedite the collection of payments. You can also negotiate payment terms with suppliers when possible so that your cash flow can be optimised.
You can request discounts from suppliers when early payments are done.
You can also explore alternative arrangements for payments such as instalment plans or trade credit so that some of the immediate cash limitations can be alleviated. This will also strengthen supplier relationships. You have to take proactive measures to manage accounts receivable. This will also minimise outstanding balances. You have to closely monitor ageing receivables and promptly follow up when there are overdue payments. There has to be a system in place when it comes to collection. You can use emails, phone calls or formal collection letters. You have to balance meeting customer demands and maintaining adequate inventory levels. It is always best to minimise excess inventory as this can tie up valuable capital. To achieve this, you can have an inventory management system in place so that you can monitor the rates for turnover. This will help you identify which items are slow moving or what has become obsolete so that you can implement markdowns or liquidation.
You have to regularly check your operating expenses.
This will help you identify which areas can be optimised and where you can cut costs. You can also check whether some of the recurring expenses such as subscriptions, utilities and rent can be renegotiated or consolidated. You need to have cost saving measures in place such as implementing energy efficient upgrades or outsourcing the non-core functions of the business. This can help free up cash for essential business activities. You can also look into working capital financing options such as business loans, lines of credit etc. so that you can bridge gaps in short term cash flow. This will help fund strategic initiatives as well.