How to improve cash flow
Businesses everywhere are currently facing economic uncertainty. However, by honing in on specific aspects of your operations and identifying ways to improve them, you can ensure that your company continues to thrive in this challenging climate. Cash flow is a key aspect of this, and this article will explore how to improve your business’ operations in this area.
Businesses who have robust cash flow measures in place, which are reviewed on a regular basis, and tailored to specific business objectives, are likely to be more successful in the long term. On the flipside, according to a study carried out by Jessie Hagen of U.S. Bank, 82 percent of businesses fail due to inadequate cash flow management.
All businesses, big and small, will benefit from implementing a definitive cash flow management strategy. Taking this step can help you feel secure in your growth trajectory, plan for the future, and can also demonstrate that you have a firm grip on your business when you are applying for loans and seeking investment.
We’ve drawn up some handy tips below for improving cash flow management in your business.
Optimise your inventory
A lot of cash could be tied up in goods which you have purchased and aren’t being sold or used efficiently within your business model.
By making a list of these products, you will highlight items which don’t need to be repeatedly purchased, allowing you to free up cash to either hold, or allocate to more profitable resources.
Start cash flow forecasting
Creating an up-to-date cash flow forecast is a game changer for businesses as it will allow you to identify periods where you may struggle to pay your bills, and plan for these instances.
Many successful businesses create a periodic cash flow forecast on a weekly or monthly basis, corroborating information regarding incoming payments, outgoings, and other utility liabilities.
Take stock of the challenges facing your industry
Your company’s cash flow forecast will undoubtedly be impacted by external variables, alongside your internal activities.
For example, managing inflationary pressures plays a big part in sustaining a healthy cash flow. Aligning your team’s pay with inflation may be a step you need to take to retain top talent. Therefore, you could offset this move by ensuring that the prices you’re charging are in line with your competitors, and have kept up with inflation. This will help bridge the gap of any extra costs you may need to outlay in this inflationary environment.
Despite external factors being outside of your control, factoring in risk catalysts is a good way of analysing potential hits to your cash flow.
By anticipating unexpected changes in the wider economic landscape, you can manage your cash flow with confidence and respond to any short-term shocks if you have contingency plans in place.
Make your team experts in cash flow
By offering training in cash flow management to your procurement experts, sales division, or stock professionals, you can help colleagues at all levels understand the importance of cash management.
By using this training to foster a close working relationship between these teams and your finance department, you can optimise cash flow management within your firm by taking a holistic approach, allowing departments to liaise on projects like moving stagnant stock, upselling new product offerings, or analysing your inventory.
Periodically review your company’s costs
Holding a regular review to gauge the total sum of your company’s outgoings will go a long way in managing your cash flow effectively. You can draw up management accounts to help you conduct this review, collating all of the important financial data around your outgoings.
By ensuring that any unnecessary costs are cut as soon as possible, you will not be wasting any of your firm’s hard earned profits on paying for items and services which don’t serve your overall mission.
Ensure efficient payments from clients
As well as galvanising future financial prosperity through managing cash flow, it is vital to chase the income which you are already owed, ensuring every invoice and payment is up to date on a regular basis.
Fostering clear communication regarding your expectations can help minimise delays in receiving funds.
Some steps that you could take to ensure rapid payments and boost cash flow management:
- Ensure that you send invoices to clients as soon as you’re ready to provide a service, inviting them to pay promptly
- Update invoices you issue with all the necessary information
- Performing credit checks on new customers if you are offering financing options
- Implementing a clearly outlined escalation process if clients pay late
Even though it can sometimes be daunting to chase for payments, it is a vital step to take to guarantee that your business stays afloat.