Unfortunately, many small business fall victim to poor cash flow management. While it isn’t uncommon for a business – especially a startup – to operate at a loss initially, constantly struggling with your bottom line can place your business in a dangerous situation. Your business is only as healthy as its cash flow situation. Consider the following ways you can ensure your business’ cash flow improves and stabilizes.
Create a Forecast
Improving your cash flow situation begins with assessing where your cash flow currently stands, and where it is projected to be in the future. Small and mid-sized businesses experiencing rapid growth are often caught off guard by the costs involved during such expansion (hiring more employees, increasing inventory, equipment purchases, etc.). For a small business, creating a forecast is a pretty straightforward. If your business is larger, it might take a little more time and effort to put together a formal cash flow projection. The advantage of using a forecast is that your business can see where it should expect changes in sales and expenses from week to week, allowing you to be more prepared.
Improve Receivables
When cash flow is a problem, it’s time to evaluate your receivables. The first place to start is to improve the time in which it takes to turn your materials (or supplies) into products, your inventory into receivables and those receivables into cash. How do you make that happen? You can achieve this in various ways. You can create incentives for early payments, and put penalties in place for late payments. For any noncash customers, you can require credit checks. You should also check to make sure your customer terms and supplier terms are balanced.
Manage Payables
A huge mistake many businesses make – especially the startup experiencing rapid growth – is to assume sales growth also means positive cash flow. On the contrary, your business can be experiencing profits, but still have a negative cash flow. It’s critical that you watch expenses very carefully. Keeping a close eye on costs will ensure you identify and seize any opportunities that arise to cut or reduce them.
Utilize Content Marketing
Often overlooked, marketing plays a key role in improving your business’ cash flow – especially content marketing. Content marketing is a type of marketing that involves the creating and sharing of online material (e.g. social media posts, blogs, videos, etc.). This content helps to foster trust and credibility with customers. It not only boosts the value of your customers, but it also opens up new markets. Any time you invest and make improvements to your business, it will lead to better cash flow.
Explore Financing Options
In some situations, it’s necessary to seek help from the outside. For many businesses, that is easier said than done. If your business is considered to be “high risk” by traditional lenders, you probably have already encountered the issues that arise. Thankfully, alternative lenders – like First American Merchant – offer cash advances that provide your business with the flexibility it needs to grow and cover expenses. Unlike a traditional lender, their application process is fast and hassle-free. In addition, the documentation requirements are simple and straightforward.
Don’t wait until it’s too late to improve your cash flow. Your business could end up in a dangerous situation sooner than you think. Worst case, you could even be forced to close your doors. In utilizing the strategies above, you’ll boost your cash flow and get your business back on track.