How to effectively manage cash flow
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Transcript of How to effectively manage cash flow
Positive cash flow
Negative cash flow
You have more cash funneling into your business from sales, accounts receivable, etc. than leaving your business from accounts payable, salaries, monthly expenses, etc.
You have more cash leaving your business than you have coming in. It’s best to avoid this situation, but there are steps to fix it by cutting costs and increasing cash flow.
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Basic ways to increase cash flow
• Improve receivables
• Increase sales
• Secure a business loan
• Manage payables
Steps to improve receivables
If we could all get paid immediately, maintaining cash flow wouldn’t be much of an issue. Unfortunately, that doesn’t typically happen, but you can implement these tried-and-true tactics to speed up receiving what you’re owed.
• Offer discounts to clients who quickly pay bills
• Ask clients to make a deposit at the time of purchase
• Require credit checks on all new non-cash customers
Steps to increase sales
Increasing sales is easier said than done, especially when cash is tight. Although customer acquisition is crucial to growing business, it can take time and money to convert prospects into sales. Instead, sell more to existing customers.
• Analyze what’s selling and why
• Improve/expand best-selling products
• Enhance customer service
Steps to manage payables
When you increase sales, you increase expenses - in supplies, labor, and other costs. If your company is growing, it’s easy to overlook these, so make sure you:
• Take advantage of creditors’ payment intervals
• Carefully consider lowest cost vs. flexible terms
• Use electronic funds to pay on last day of term
Steps to secure a business loan
Using a business loan allows you to turn total invoices and expenses into manageable monthly payments. You can use working capital to pay for everything from supplies to taxes to employees’ salaries. Alternatively, equipment financing puts your equipment to work for you, covering its expense as it makes your business money very month. You can use loans to:
• Maximize total capital you have available • Only pay for expenses when you can • Obtain contracts and business growth