Cash is King. There are no two ways about it. Effective cash flow management is one of the the foundations of a business. How do you improve cash flow? In theory it is simple, increase your cash inflow and decrease the cash outflow. However, putting this formula into practice is easier said than done. Hence, managing your cash flows requires foresight.
We have explored the need for cash forecasting and budgeting in our previous post .In this post we will provide you with some pointers on how to improve cash flow :
1. Review of Costs
Review the costs being incurred in your business and formulate a budget for major expenses. Bench mark these expenses against a previous period. Look for cost savings by looking for cheaper products and services.
If you are a manufacturing business or a retail business then managing inventory must be a focus area. Categorise inventory into fast,slow and non moving items. Stocking fast moving items will lead to quick inventory to cash cycle and cut cash blocking in piled up stock. There are various inventory management tools available. We recommend Zoho Inventory.
3.Get paid faster by Customers
Make it easy for customers to pay you by using payment gateways. These integrate cloud based accounting apps and makes collections & reconciliation a breeze. Monitoring credit periods is a must to manage cash from customers.
4.Price your products/services
It is important to price your products/services to maintain their perceived value. Increase in sales prices will lead to positive cash flows whereas decrease in sales price may result in increase in sales volume thereby leading to increased cash flows. So these decisions should not lead to loosing customers or decreasing sales. It is a fine line to tread.
5. Build a cash forecast
Cash forecast is a strategic decision making tool. Hence it is important to run forecasts at regular intervals, this could be monthly, quarterly or even annual. A forecast always gives you a heads up.
Get proactive with cash flows
Work closely with your accountant to do all this. A cloud based accounting software helps you to do this and much more for your business.