Running a small business can be pretty challenging. Only 40% of SMEs are relatively profitable, with 10% having a chance of survival for the next decade. 30% of small businesses break even between making profit and losses, while another 30% make losses continuously.
Cash flow management is a critical aspect that can make or break a business. Poor management can hinder you from achieving your goals, such as expansion. Limited cash flow in a small business also means limited resources for adapting to changes.
So, what’s the secret to efficient cash flow management for small businesses? How do you improve cash flow management and stay ahead of the competition? Check out these six tips.
- Know the Basics of Cash Flow Management for Small Businesses
It’s night impossible to control what you don’t understand or can’t measure. First, you need to seek cash flow management advice and comprehend the basics involved. For instance, there are two types of cash flow; positive and negative.
Positive cash flow occurs when the money from your sales and receivable accounts exceeds outgoing revenue. If you have a higher employee turnover, pay as you go premium insurance can help you simply their payment plan. You’ll likely achieve a positive cash flow.
On the other hand, negative cash flow is bad for business. It occurs when your expenses are more than the incoming revenue.
- Short and Long-Term Financing Are Options
Sometimes, payables and receivables can delay, affecting your cash flow management. In that case, short-term financing can help bridge this gap. You can get a business credit card for emergency purchases.
It’s also prudent to acquire large assets with long-term financing options as opposed to working capital. That means you’ll spread the payments, improving your cash flow management.
- Recover Receivables Within the Shortest Time Possible
Another secret that can help improve cash flow management is billing early and collecting quickly. For instance, you can send invoices more frequently to protect your startup from late payments. That means mailing invoices as soon as customers receive the goods.
- Liquidate Some Assets
A business asset is only essential if it’s useful. The moment it becomes obsolete, you can convert it into quick cash.
Moreover, older assets usually have the same book value as their salvage value. Liquidating such assets won’t amount to losses.
- Tighten Credit Requirements
It’s normal to extend credit to buyers, especially when the business is new. Giving credit helps build customer loyalty. However, before giving credit to anyone, you need to do your research. Every customer poses a risk when given goods/services on credit.
Also, you need to tighten the credit requirements if you’re going to improve cash flow management. For instance, you can introduce a credit application form. You can determine the buyer’s creditworthiness based on the information provided on these forms.
- Delaying Your Payables
Delaying payables is an obvious strategy for cash flow management for small businesses. However, many startups ignore it. Holding back on your payables means you’ll have cash with you to meet emergency needs.
The only situation that should prompt you to remit payables early is if there is an incentive. For regular payables, figure out how long you can hold without risking your relationship.
Get Professional Cash Flow Management Advice
Besides implementing these cash flow management tips, it’s also prudent to seek expert advice from industry professionals. Also, there are many resources on the internet that teach better practices for cash flow management for small businesses.
Read other articles on this site for more tips on how to improve cash flow management.