3 Steps to Improving Cash Flow Problems
A smooth cash flow is crucial to any business’s finances, but if you have too much cash going out and not enough coming in, it can be hard to fix. What’s the problem? Not enough revenue? Your operating costs are too high? Those are the obvious first places to look, but if your business seems like it should be healthy and cash flow is still an issue, the problem may lie elsewhere. Here are a few things you can do to improve your cash flow, without doubling sales or working with the lights out.
Assess your situation. The first thing you need to do is see where you actually stand right now. If you don’t have a good handle on your finances that may be the root of the problem – there may be hidden costs somewhere, or you may not actually be taking in as much money as you think you are.
Start with a thorough forecast. If you know ahead of time where your income and costs are coming from and when they’re going to be at your doorstep, it’s a lot easier to make decisions. For example: if your sales have grown recently you might hire or expand your operation to meet the need. But that’s a lot of money upfront – do you know when it’s coming back in? If not, you could be hung out to dry if an unexpected cost comes due.
As part of this process you should examine the balance between customer terms and supplier terms. If you’re waiting a lot longer to get paid than you’re waiting to pay, you’ll start falling behind. You may need to figure out ways to bring in more of your revenue upfront, or look to find suppliers that are more in tune with your cash flow needs. If your business is small enough that the financial department is small – or it’s just you – there is also cost-effective help available. You can find an outsourced accountant or bookkeeping service to help analyze your situation, and get moving in the right direction.
Establish actionable tactics. Changing how you handle your finances as a whole could go a long way towards healing the wounds of poor cash flow. First of all, if you’re trying to manage the whole thing all at once, stop. Divide your suppliers, customers, and inventory and look at each on its own.
Are your regular suppliers being paid in the most cost-effective fashion? Are there discounts you could get for being a good customer? Are your sales steady, or is a lot of your money tied up in products or services that don’t sell well, or only sell at certain times? And are your best customers really the ones who pay you the most – or are they costing you more than they’re really worth? Make this the permanent format of your analysis; don’t just do it when times are tough. And is your collections system running efficiently and intelligently? If not, fixing it is the best way to start getting your money faster. Examine how soon you’re getting paid, whether you’re in contact with customers enough, and whether disputes are identified and handled in a timely fashion. This isn’t just a long-term issue, but a short-term one as well. If you need money now, it’s not prudent to allow customers to wait until 90 days after the fact – start contact after 60, or even 30 days. And it’s not just on your receivables department, either. Paying your bills promptly can open up new discounts and establish your business as a good partner, whether you’re collecting or paying.
Prioritize the solution. Most importantly, you can’t let the problem fester. If cash flow is an issue for your business, take these steps today, not tomorrow. And make sure it’s clear to your whole staff that it’s a priority, not just the financial department’s. If it’s a business-wide policy to make finances more efficient, rather than just a priority for your collections department, even your sales team will get on board. And when employees have a goal to meet, they’re far more likely to pursue it.