Five Ways to Keep Your Business Cash on Track
There’s a common saying in business: cash is king.
Having a strong cash position gives a business a critical buffer when it comes to covering day-to-day operational expenses, paying suppliers and making capital purchases. However, cashflow can be notoriously difficult to manage in practice, even for profitable businesses.
Five ways that can help keep your business’s cashflow on track
Prepare a cashflow budget
One of the best ways to keep track of cashflow in your business is to budget. A budget or cashflow projection can help you monitor your cashflow position, while also identifying the times of year where cash might be a bit tighter and help you plan accordingly.
You can choose how often to prepare a budget – monthly, quarterly, or even annually – but make sure to compare your cashflow budget to your actual performance to make sure you’re on track (or to fix things if not).
Know your funding options
Ideally, a business should have enough cash to cover its operational and compliance costs. However, this is not always feasible. To keep your business afloat, identify any additional funding sources your business might need. This includes traditional options such as loan financing or organising an overdraft, but funding can come from other sources too, such as from an angel investor or (depending on what the cash will be used for) a government grant.
Shorten payment times
Another way to boost cashflow is to look at the payment terms your business currently offers customers, whether that’s one week, 30 days, or more.
If your payment terms are on the longer side, consider shortening them to bring cash into the business a little quicker. Ways to encourage prompter payment include sending payment reminders to customers, introducing a modest early payment discount, or including a policy on your invoices that you may charge customers a fee or interest on any late paid amounts.
Extend payments to suppliers
Just as it’s a good idea to bring cash from customers into the business as quickly as possible, it’s also a good move to review your current payment arrangements with your suppliers. Some suppliers can offer generous payment terms, so if you need cash to sit in your business account a little longer, consider negotiating longer payment windows, or ask a supplier if they would be willing to offer an early payment discount if not.
Inventory review
If your business needs to free up extra cash, consider conducting an inventory review.While some level of inventory is necessary for almost all businesses, excess stock can be a quick way to suck up cash that could be better deployed elsewhere. An inventory review can tell you whether you hold enough stock to meet customer demand and can help prevent over-ordering going forward.
