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3 Simple Ways to Improve Your Cash Flow
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There’s nothing like a cash crisis in your business to make you take a hard look at how efficiently cash flows through your company. But don’t wait until you’re panicked about cash to improve your cash flow. You can and should take steps now to improve the financial health of your company. Here are three simple ways to keep more cash in your company:

1. Manage your expenses.

Create an expense report and review every item. You’re looking for ways to reduce the amount of cash you’re paying out. Begin by eliminating expenses that aren’t entirely necessary. Become frugal but don’t endanger the business.

Find suppliers with lower prices and better terms. Try to negotiate better (longer) payment terms with your suppliers. If you’re a startup, you may not have a lot of negotiating power, but existing businesses with good payment histories might be able to get better payment terms, preferably 30 or 45 days. Pay on time, but never early.

2. Manage your revenue.

Just as you’re managing how you pay suppliers, you need to manage how your suppliers pay you. Take a close look at the terms you extend to your suppliers and how those terms impact your cash flow. How many days did they take to pay you? You can provide incentives and discounts to suppliers for paying earlier, but be careful to monitor how much you might lose by offering discounts.

Make it as easy as possible to get paid:  accept credit cards, setup PayPal or use Square for on-the-spot credit card payments if at all possible.

Know how much suppliers owe you and don’t delay talking with them to setup a payment arrangement. Cut off slow payers until they become current—it’s o.k. to fire customers that become a drag on the system.

Are there seasonal fluctuations in your business that you need to take into account? Anticipating cash flow during high and low selling seasons is crucial to stay ahead of cash crunches.

3. Manage your inventory.

For a products-based business, a lot of your cash goes into buying and maintaining inventory. How well do you control your inventory levels? Do you know, at any given time, how much inventory you have for each product? Having the right amount of inventory for expected sales is your goal. Don’t keep unnecessary levels of stock on hand—only what you need. There’s no sense in paying for inventory that just sits in the warehouse. This technique is called ‘Just in Time’ inventory management, or JIT. Learn more about JIT to manage your inventory more efficiently.

Staying informed of your situation and anticipating cash flow needs is the best tool you have to manage your company’s cash flow. Don’t wait until you’re panicking! Be proactive, write a cash flow report and do everything in your control to maximize your cash.

Cynthia McCahonFounder and CEO, Enloop.com
After years of providing business planning and development services for private clients, Cynthia became acutely aware that many entrepreneurs struggled to develop accurate business plans and saw the need for a free tool like Enloop.
www.enloop.com | Facebook | @cmccahon | More from Cynthia

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Discussion (5) Comment


  1. David MooreVisitor

    I think business owners often try to juggle buisness cash flow maintenance and management along with the day to day running of the business. This is a job that needs serious care and attention, comprehensive plans and spreadsheets so you know exactly whats coming in and out financially. Planning is certainly key and will relieve a lot of stress! A good read, thanks.


  2. Robert BrownVisitor

    This is very interesting advice to improve cash flow.To manage your cash flow one must keep a check and balance on his inflow and outflow so he will come to know why he is running out of capital and if he is suffering from financial issues it will also come upfront.Manage a file on which you can note your expenses and incoming.Make deals with such companies in which you do not suffer from over cash flow.invest sensibly ,creatively and do research before investing that is that a beneficial investment or will it leads you towards cash flow issues.


  3. Kirsten ClarkVisitor

    I agree with your article. I’m an advocate of Cash Flow Projections and feel they are a must for all businesses. There is a simple way to set up your own cash flow with an excel cash flow template and information from your financial reports. Businesses that continually update their cash flow projection have a much higher rate to succeed.

  4. I would suggest that looking at the company sales process, tracking and efforts for slack efforts, improving tracking, building relationships, and holding sales staff accountable will greatly improve cash flow. Increases in sales volume historically increases cash flow.

    Managing expenses, inventory are part of day to day operations and do impact the bottomline.

    In managing revenue the operational items you mentioned are good but increasing sales make it all possible and it truly the most important part of creating a business that will survive.

    I am a long time entrepreneur and know directly what I speak of.


  5. Rob OskinsVisitor

    Great advice, Cynthia. It also helps to do a business checkup at least once a year — think of it as a physical. Review all expenses. Do you need them? Can you get a better deal? One manager save thousands of dollars by changing phone plans for different employees. (One plan may be perfect for an employee, but $$$ for another.)

    Pay suppliers on time to cement your relationship with them. Then, they’re more likely to help out when you’re in a bind or less likely to pay you late.

    Absolutely agree that sometimes you have to fire clients. Sounds counterproductive — but you may end up replacing one difficult client with two breezy ones.

 

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