Even if you have a great product, you won’t get far if you can’t find customers. And even if you find retailers to ship to and customers online, you won’t be able to keep the lights on if you don’t have money coming in on time. That’s why it’s no surprise that most businesses fail due to a lack of cash flow.
Getting positive business cash flow should be your primary goal in a new business, but it isn’t always easy. Follow the advice below to set up a cash flow management system that helps your company grow.
Unpaid invoices will be one of your business’s biggest cash flow drains. Many businesses prefer to pay on net terms, meaning you won’t get immediately paid for many purchases.
Make sure to invoice regularly and follow up on unpaid invoices. If companies start being late with payments, it can drastically impact your cash flow — which is a big problem if you rely on invoices being paid on time to pay for other expenses.
It also pays to work with banks for entrepreneurs, like Winden business banking for entrepreneurs, that process transactions quickly to avoid having money tied up in transit.
A lot of your negative cash flow comes from inventory management if you’re a product business. You spend much of your revenue buying more stock — and if you buy too much inventory and let it set in a warehouse, that’s money tied up that you can’t use for other purposes.
Be sure to take inventory management seriously and buy the proper amount of stock. Use forecasting tools and other methods to buy as much inventory as you need to meet demand. Ideally, use a just-in-time (JIT) ordering method to minimize the amount of cash you have tied up in your warehouse.
Income from product sales and other sources isn’t your only source of cash flow. If you can line up financing — whether in the form of loans or credit lines — you can draw on those sources to add to your company’s cash flow.
But it’s important to line these sources of financing up before you need them. Reach out to local lenders to learn your options and set up financing deals ahead of time.
Classify All Income and Expenses
Managing cash flow is hard when you don’t have insight into your business. Even if your business makes a profit on every sale, you won’t be able to keep your operations running if you run out of cash before your invoices get paid.
Understanding all your income and expenses will help you stop this from happening. It will ensure you always have enough money in the bank to cover expenses and extra to help fuel growth.
Take Business Cash Flow Seriously
It’s tempting to focus solely on profit in business — after all, you don’t want to sell products at a loss and make no money. But if you don’t manage your business cash flow as well, you won’t be able to have enough money coming in to handle regular business expenses, regardless of how much profit you make.
You must do whatever possible to improve the cash flow of a business. Follow the advice above to increase cash flow and improve your business finances.
Of course, you’ll need more than excellent cash flow to get ahead in business. Check out more business advice on the blog to learn more about business growth.