Cash flow is an important component of business operations. It ascertains whether a business is on sound footing and what its future outlook is. However, creating and sustaining sufficient cash flow is a major challenge, especially for small businesses and startups beginning to get off the ground.
Recent economic conditions like rising inflation and increased reliance on data have made many business owners and management officials skeptical. Nearly 43% of officials and 55% of CEOs stated that they are concerned about the impact that high-interest rates will have on the ability of their customers to pay back.
At the same time, 41% of respondents have stated that their organizations are expecting to jack up costs because of mounting expenses, while 42% are sure that owing to the current financial landscape, customers will have less to spend in the market, particularly in the days to come.
In the midst of all the skepticism, how do you improve the cash flow for your business? Well, the global economy may still be in recovery after the COVID-19 pandemic but is still considerable room for businesses to grow, expand and prosper.
Here’s how you can improve the cashflows for your business:
Find sources to raise capital
It may not be the simplest of tasks, but it is undoubtedly one of the most effective ways to improve cash flow for your business. An infusion of capital adds a positive item to the head of your financial statements that reads ‘cash flow from financing activities’. Thankfully, there is a variety of reliable capital raising services you can consult to set the ball rolling.
When capital financing is injected into the company, especially through the equity route, it bolsters the cash flow statement considerably. You can utilize this cash in a variety of ways, like investing in other avenues, procuring supplies, or covering numerous expenses, but as long as it hits your accounts, it will have a positive impact.
Take steps to convince customers to pay early
Not all customers delay payments, but some do so excessively. In case your business has a lot or even a few of this type of customer, these people withholding payments can weaken your cash flow. It is, therefore, essential to take certain steps that can motivate these people to make their settlements early:
- Streamline the invoice generation and delivery processes so that products arrive at customers’ doorsteps as early as possible
- Expand the diversity of payment options available to include credit cards, direct deposits, and payments through mobile wallets
- Associate early payments with discounts and other incentives so that customers may feel valued, pushing them to make prompt payments
- When the order is special or large, ask for deposits before confirming
- Follow up constantly about debts and outstanding payments from various sources
- Develop mechanisms that instantly resolve disputes from customers
Focus on better management of staffing
It is often said that the customer is the most valuable asset for any company. That may be true, but employees are equally important as they drive the success and credibility of a business on a daily basis. Team members of any business have a substantial role to play in its cash flow standings too. Here’s how your staffing arrangements may benefit from the following adjustments to reduce lost wages:
- Flexible staffing arrangements are necessary, and the roster system must be adjusted at busy times
- Wait to pay the sales commission until you have received the customer’s payment
- Reward employees for actions that increase revenue, such as achieving sales goals and cutting costs
Improve management of suppliers and inventory
Having loads of inventory that isn’t moving fast enough isn’t a worthwhile investment. What this means is that there is no need to pay suppliers to send raw materials that aren’t being utilized. In fact, pay more attention to carefully examining the volume of orders against the ideal threshold of stock to hold. This helps you streamline your operations and improve cash flows.
Here are a few tips that can help:
- Identify obsolete or slow-moving stock and make plans to replace it with items that have faster turnaround times
- Use digital, data-backed solutions to analyze inventory levels and constantly analyze when and for how many units you need to place an order at any given time
- Implement a ‘just-in-time’ ordering system that ensures that none of the business’s cash is wasted on supplies that may not be needed for a long time
- Develop contracts with the extra time that acts as a buffer for you to make stock payments. This window acts as an interest-free loan.
Polish up other investments and assets too
Cash flow indicates both the inward and outward movement of money in a business. In order to improve, either expenses and spending need to be cut, or revenues need to be increased. Here are some options you can explore in this regard:
- At times, businesses have unutilized assets like land, property, vehicles, and equipment. Selling these items can allow the business to increase cash flow and save on numerous overheads like insurance, storage, maintenance, etc.
- If you are looking to buy an asset, explore leasing options if feasible because they allow you to smooth out the cash flows
- Take the time to find the best possible investment opportunities for any extra cash your business may have
Work on your marketing strategy
This may seem like a suggestion that is out of place but in the modern world; marketing has a lot to do with cash flows. By enhancing its brand image and advertising techniques, a business can attract significantly more customers, which will drive revenue toward the business. Take certain steps to tweak your marketing strategy to make it more effective.
The world today relies heavily on data and so does modern marketing. Utilizing sophisticated resources and data analytics can help a business allocate marketing resources to avenues that generate the highest returns of investments. This action eventually eases the burden of expense on the business and its cash flows.
In order to improve the cash flow of any business, there are several steps that can be taken. Customers and investors are actively in search of companies that address one or many of their problems. They are also willing to pay the business to do this. All a firm has to do with effectively weighing both sides and making a relevant decision to enhance their cash flows.