article from guest blogger Amy Collet http://bizwell.org/
The cash flow concept is simple enough: It refers to the amount of cash (or cash equivalent) flowing into and out of your business. To have positive cash flow — crucial for any type of business to survive — you must have more money coming in than going out. If you’re spending more than you’re bringing in, you’ve got a significant problem.
Though the concept of cash flow is simple, managing small business cash flow can be challenging. Here is some practical information and advice as you start taking steps toward healthier cash flow management for your business.
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Adjust How You Pay and Get Paid
If you’re like most businesses, you don’t have the luxury of always getting paid immediately for your sales. When customers fail to pay their bills on time, it can lead to serious cash flow issues. Requesting deposits when items are ordered, providing discounts and other incentives to customers who pay quickly, and identifying slow payers in your accounts receivable are a few ways you can minimize this problem.
It’s also critical to control the money that’s flowing out of your business. Regularly review your budget and look for any expenses you can cut. For instance, do you really need that new espresso machine for the break room? Other things you can do include:
- Setting up your payments to be spread throughout the month.
- Transferring your payments electronically as late as possible (ideally on due dates).
- Maintaining good relationships with your suppliers (so that they will be more understanding if you go through a rough patch).
Be Cautious with Extending Credit
Extending credit to customers is common, particularly for new businesses, but it can cause cash flow problems if your customers cannot pay their bills on time. Along with researching each customer, think about accepting credit cards. You may be charged for each transaction, but it’s well worth it if it prevents serious cash flow issues.
Finally, think of ways to increase your profit margin. While there are obvious advantages to acquiring new customers and selling new products (such as more sales), try focusing on existing customers. Not only is it less expensive, but it doesn’t require your team to invest as much time.
Start by analyzing your customers — looking at what kinds of products they buy the most and why they buy them. Use that information to strategize your offerings and marketing tactics. Offering special promotions and exclusive discounts to long-time customers is another way to boost revenue.
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Maintaining healthy cash flow is a must if you want your business to succeed long-term. Remember to figure out practical ways to manage your payables and receivables. Proceed with caution when it comes to extending credit, and determine how you can cater to existing customers to boost revenue. By following these tips, you can get your finances under control and put your business in a stable position to flourish.