According to an article by Michael Flint entitled “Cash Flow: The Reason 82% of Business…
Think of sales as the muscles of your organization and cash flow as its lifeblood. Ultimately, cash flow is the sustenance that keeps you afloat by allowing you to cover your ongoing operational expenses. It primes you to take advantage of investment opportunities, insulates you against unanticipated problems, and serves to set the stage for future growth and expansion. Optimizing this flow and increasing the spread between inflows and outflows helps to cultivate a cash cushion that is essential to the long-term, sustainable growth of companies both large and small. Here are five ways you can work to boost cash flow today.
Use a High Interest Savings Account
Interest-earning checking accounts are available at most banks today, albeit with a minimum balance requirement. Since interest rates on these accounts are often below rates on business savings accounts, certificates of deposit (CDs), or money market accounts, keep the bulk of your cash balances in these higher interest accounts. By doing so, your small businesses can enhance liquidity while working to improve overall cash flow.
Negative cash flow is often found in fixed assets that have ongoing payment obligations. Examples include vehicles and business equipment. Look into leasing business machinery and vehicles as opposed to buying them to take advantage of tax incentives and to avoid having your funds tied up in depreciating assets. Also, look into long term contracts with phone and technology providers to see if you are currently getting the best deal. Lowering staff overtime, cutting down on power/water, and going paperless can also serve to reduce your overall monthly expenses. Taken together, these measures can significantly boost monthly cash flow which gives you additional funds to invest in more productive ways.
Establish a Clear Payment Policy
Introducing a clear payment policy will serve to facilitate positive cash flow. Keep your payment terms short to ensure you get paid as expeditiously as possible and make sure to clearly list these terms on every invoice you send out. Offer your customers a range of payment options to make payment as convenient as possible. In addition, consider incentives for early payment such as small discounts. Conversely, look into instituting late penalties and interest for customers that routinely pay late.
Use Online Tools
Don’t let vendor and customer invoices pile up. Consider investing in online accounting software that will manage all of your bills while also allowing you to automate payments. When you’re set up to process payments electronically, your business can wait until the morning of a bill’s due date to make a payment. This delay in payment (without being late) will work to improve cash flow greatly. On the customer side, by sending invoices to anyone who owes you money for products or services immediately, you reduce the delay that commonly occurs in standard invoicing.
Sell Excess Equipment/Inventory
Idle, obsolete, or non-viable equipment takes up space, ties up capital, and presents various opportunity costs. With funds freed up, resources can be employed in a much more productive fashion. As customer preferences and requirements change, new materials are introduced in the market which can make old equipment obsolete. Equipment that has been owned for a long period will usually have a book value equal to its salvage value or less, so a sale might result in a taxable gain. Consider selling any inventory which is unlikely to be utilized over the next 12 months unless the costs to retain it are minimal and the proceeds from a sale would be relatively negligible.