How to improve your cash flow

An incredibly common problem for any business is cash flow. Lack of funds remains the number one reason that business fails, and this can be at any stage during the life of a business.

Regardless of the size of the business cash flow remains an issue that must be monitored on a regular basis and budgeted for of the long term.

Google definition – Noun: Cash Flow; The total amount of money being transferred into and out of a business, especially as affecting liquidity.

A very simple way of trying to improve your cash flow is to look at bringing your revenue in faster but paying your bills slower.

Sounds simple enough – Right, WRONG!

You don’t want to start to cause any issues with your suppliers by not paying them on time, this can lead to even more trouble.

With any invoices you send out; now is the time to review your payment terms and make sure that clients are sticking to it. Some of your clients may be stretching out your payments to help their own cash flow. So unless you operate a credit agency and are lending money, you should not be funding other peoples business operations.

Without ongoing monitoring of your cash flow even the simplest of plans will not work out for you over the long term. If you are struggling with cash flow the only way to win the war is through a disciplined plan. This plan has to be strong, vigilant and long term if you are going to win the war on your cash flow.

Create a Budget

You can create a cash flow budget that will help with working out your expenses over time. This will help you to keep money for when expenses are coming up and when revenue is also expected.

If this budget is going to be effective you must be monitoring it on a monthly basis and making timely adjustments. Ensure that you have cash in the bank for the times that are slower in your business.

Creating a budget is not always easy so if you need help, get it. There are plenty of different ways that you can do this and most accounting software will help you.

Selling a product

If you are selling a product you need to be aware of something called inventory creep. Inventory creep happens when you stop buying strategically for your business.

What this leads to is 80% of your revenue coming from 20% of your inventory. Which means that you now have 80% of your inventory tying up your cash flow!

To repair this you need to be smart about the way that you get rid of this excess stock, don’t leave it hanging around years on end and don’t discount it too much either.

When you are purchasing have a look at your ideal client, who are they and are you purchasing an item for yourself or for them!

Finally remember that cash flow is the lifeblood of your business. Without cash your business will struggle and inevitably fail.

If you are hoping to learn the financial fundamentals of small business, have a look at the My Sassy Business Financial Fundamentals workbook. At just $15 it is yours to work through and keep.

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