5 Cash Flow essentials for every Small Business
Looking to increase cashflow in your business? Perhaps its time to start thinking like a blue chip company. The idea might sound overwhelming but applying some simple strategies used by the big guys you too can confidently increase cash flow and decease bad debt in your small business.
1. Speed up customer payments
How do you do this? Make it easy for customers to pay you! Consider offering payment terms that give you instant cashflow such as Visa/Mastcard and EFTPOS.
Ask yourself, which of your customers should you extend credit? People are use to paying C.O.D. or even pre-paying for goods. If you are concerned your existing customers wont like paying upfront perhaps offer them a discount for pre-paying.
2. Baggage, who needs it! Don’t hold stock you don’t need
Keeping stock is heavy, it reduces cash on hand, and takes up space to store – makes sense right? Start by assessing what stock you have on hand, how long has it been there? Does it move slowly? How much is it costing you to hold.
In small business, along with every other role, you’re the supply chain manager.
- Exercise discipline and only base stock orders on real customer demand.
- Track employee purchasing, are they over ordering? Do you have procedures in place to reduce wastage and organise stock for easy access?
By being aware of the inventory you’re holding and how it flows in and out of your business, the answers on how to refine this will come.
3. Don’t pay earlier than necessary (unless there is a benefit)
Deloitte’s advocate in their Working Capital series to ask suppliers if they offer discounts or rebates for early payment. In a ‘you scratch my back I scratch yours’ kind of arrangement. This type of arrangement can reduce costs and enhance your supplier relations.
4. Plan timing of major expenditure and don’t impulse buy!
Start with your business priorities. Make a list of purchases that are necessary to operate right down to the Herman Miller Aeron office chair you’d like to snuggle into daily – not a priority, and will only decrease cash flow, but… it’s pretty right?
Now, hold that thought and take note of number 5.
5. Invest idle cash – make it work for it’s keep! (unlike your teens)
How do you figure out how to make your savings work to increase cash flow too?
What does your business need to expand? No doubt you have your ideas, every entrepreneur does.
Let’s break these ideas down into bite size successfully planned pieces:
- Start by looking at how you can use your money to it’s full potential, do you have your savings currently in a term deposit, what is the interest, how is that serving you, could you find a better deal somewhere else?
- Next, expanding and refining how your business runs can increase profit, is this an option? What investments can you make into your business that will increase profit and in turn, you guessed it – cash flow.
- Now take a step back, do your lists 4 and 5 overlap? Is there a clear flow of potential expenditures and business expansion developing? There it is, the inception of your investment plan – plain and simple.
Slow and steady wins the race where major spending in small business exists, so ensure you always have excellent liquidity (and this doesn’t mean a well stocked wine fridge!)
Need more help? Creel Price’s book “The one thing to win at the game of business” will send you on your way when it comes to making the right decisions.
A match made in heaven; you + sleep + cash flow
It’s important to sleep, as a small business owner this might be hard, but studies show a good nights sleep will have you hit the ground running, refine your cash flow and have you meeting your ATO obligations.
Tap into your well-tuned discipline, work on your business, not just in it.