Running a business is no easy feat. It comes with numerous challenges, but among the greatest of them is cash flow management — your business's lifeline. A business with a sturdy cash flow is easier to manage and has an improved value. However, most business owners underrate its value. They think a business's financial health will remain stable as long as sales and revenue are looking good.
But considering all the money that goes out as well, including salaries, utilities, business supplies, and rent, cash flow issues can completely tip your business off balance. Creating a balance by tracking the money rotating within your business is essential for creating a stable cash flow. This article shares eight tips to help you stabilize cash flow within your business.
Build A Cash Flow Forecast
If you want your business to survive through the inevitable cash balance fluctuations, you need to create and maintain a cash flow forecast. Predicting the peaks and lows in your revenue and expenditure is crucial to stabilizing business cash flow. You need to understand when and where these highs or lows will occur to help you adequately prepare for them.
Additionally, these forecasts enable you to create a robust budget that can help you align your income to your expenditure, depending on the season you're going through. With an accurate forecast and a budget, you should be able to track your revenue and expenditure more accurately. This helps you to keep within your spending power at any point and avoid cash flow problems.
You can use accounting software to help you prepare forecasts and an operating budget to help you be more effective in monitoring and managing your cash flow. However, it's also essential to keep reviewing your forecast and budget when changes such as making big sales or expenditures occur.
Look Into Financing Options
You don't need to wait for cash flow problems to arise to start solving them. The best way to go about it is by taking a proactive approach to these issues. When things are well with your business, that's the best time to seek financing. Your cash flow forecast is the best tool to help you know the best timing for taking a working capital loan.
A working capital loan can lift your business's cash flow, especially if seasonality affects it. Besides, the working capital loan application process is far much more straightforward when your accounts are still good. This way, you avoid having your application for financing rejected when you need it most. In addition, you'll always have something to push you through when your business's cash flow takes a hit.
Cut Your Expenditure
Stabilizing business cash flow means regulating your spending on anything that's not bringing in profits. Review all your expenses and see if there's anywhere you can cut on spending. Are all your expenses essential, or are there cheaper options available? Cutting down on your expenses can help inject the health you need into your cash flow.
One of the ways you can do that is by leasing equipment instead of buying. When you look at it practically, buying equipment is cheaper in the long term but not in the short term. The cost involved in acquiring, running, maintaining, or updating your outdated equipment can be pretty high. Leasing is, therefore, a better alternative in that case.
Even though leasing may be expensive, it allows you to pay significantly lower portions than the huge chunks you pay when you buy equipment. Besides, you can qualify for tax credits on equipment leases, further lowering your tax burden, having a lesser amount going out. This can significantly improve your cash flow.
Also, try negotiating with your vendors and suppliers for better deals. Are you paying a fair price for your office rent? Can you get cheaper service providers than the ones currently on your vendor list? Try and get the best rates at whichever level to get the most cost-effective deals you can. You can consider changing suppliers for cheaper alternatives if need be.
Streamline Invoicing To Get Paid On Time
Getting paid on time is a crucial part of stabilizing your cash flow. Account receivables are essential short-term assets that help boost the value of your business. One of the biggest mistakes you can make in a business is not streamlining your account receivables. If your invoices aren't being paid early, at least ensure that your customers are paying on time.
This means sending invoices immediately after you complete a job or at the delivery of goods and services. If you delay sending invoices to your customers, it'll negatively affect your account receivables. The best way to ensure that this doesn't happen is by streamlining your invoicing system. Fortunately, technology can help in this matter.
There are numerous invoicing and accounting software, particularly online and cloud software, to help make your invoicing system better. Streamlining your invoicing system ensures invoices are recorded and kept, and tracking or following up payments is more manageable with no errors or double entries, plus many other benefits.
Ultimately, you'll reduce issues that lead to payment delays and make customers pay promptly. Timely payment of invoices means better stability in your business cash flow.
Improve Customer Retention
If cash flow is the lifeline of your business, then customers are the lifeline of your revenue. Without customers, you would close your business for sure. However, retaining the customers you already have is much cheaper than acquiring new ones. They're also likely to spend more on your business, improving your business sales and revenue.
Notably, customer satisfaction is crucial to customer retention. How you treat your customers determines whether they stay or leave. So, make sure you keep your existing customers happy if you want them to stay loyal and buy your products or services. One of the best ways to keep your customers buying is by offering them discounts.
Since you're looking to stabilize your cash flow, the discounts you offer don't need to cost you much. For instance, you can offer discounts after a customer’s fifth purchase. This is an excellent way to encourage them to spend more while incentivizing them to come back. This helps considerably improve cash flow without spending too much in the process.
Opt For Invoice Factoring Services
Besides the issue of poor invoicing practices and late payments, invoices aren't typically paid immediately after you send them. It would be such a good thing if they did. Invoices always have a payment period that is mostly 30, 60, or 90 days. Sometimes, this waiting period is enough to cause cash flow issues if you have most of your revenue held up in unpaid invoices.
The best option for you is to opt for invoice factoring services. This means selling your account receivables or unpaid invoices to another company in exchange for immediate cash. Invoice factoring companies buy your unpaid invoices at a discount. They then take over the process of following up on payment with your customers.
When your business is experiencing cash flow trouble, and you have unpaid invoices laying around, this is one of the best alternatives for you. As stated, unpaid invoices are among the leading causes of cash flow troubles in a business. So, having someone else pay you immediately after you send an invoice can quickly put your cash flow back on track.
Get Different Streams Of Income
While you may have accepted the highs and lows of business income, it's possible to change that cycle. Look around and see what else you can do to get income besides your main products or services. Diversifying your income is an excellent way to improve business cash flow, and ultimately - its value. Look at other ways you can bring income into your business besides your primary offering.
For example, leasing equipment or space that you're not using to other businesses can be an excellent source of extra cash to boost cash flow. However, it would be best to advertise the additional offering aggressively and, on many platforms to improve visibility. This will boost its chances of their success.
Get A Business Advisor
Engaging a professional to help you with cash flow problems can be a good idea, particularly when you don't know where to start. This is a better option instead of making guesses or trial and error methods that might put your business in more trouble.
A financial advisor can help you identify problem areas quickly and help you with creating an actionable plan. However, you don't need to get a professional only when trouble strikes. Talking to a professional regularly can help you stay on track with your financial planning and management.
Seeking guidance helps you stay on the right track with your finances. A professional can give you insights on tax reduction strategies, budgeting, and other matters that help your business become more profitable.
Positive cash flow helps you run your business more efficiently without worrying about the ability to cater to everyday running costs. It also gives you the courage to make better decisions that will improve your business' value. The tips shared above can help you improve and stabilize cash flow to a considerable extent.
Johannes Johnson loves his job and has been handling small business loan applications for over a decade. During his free time, he shares his insights and expertise through blogging. Johannes is sports-minded. He loves to play basketball and swim.