Often the difference between a good business and a great business can be the cashflow. In other words CASHFLOW IS KING. Small businesses often focus on profit and how much money they are going to make. However, lose sight of their day-to-day cashflow which can cause major problems when their business ‘goes into the black’.
So what do we mean when we say ‘cashflow’? Put very simply cashflow is the difference between money going out and money coming in. For example, if you make a large order for stock on day 1 and the supplier invoice is due to be paid in 30 days (outgoing money). If by the end of the 30 day period you have not sold enough stock to cover the purchase cost you will have a cashflow imbalance as you have more money going out than coming in. If this is not correctly managed the flow on effect can be disastrous for small business.
In any business cash can be managed in different ways, here are a few tips for increasing your cashflow:
1. Offering customer discounts for payment within a limited timeframe
2. Having strict policies for collection of outstanding accounts receivable
3. Strictly controlling your inventory levels to reduce the amount of cash ‘tied up’ in stock
4. Negotiating longer payment terms with your suppliers
5. Financing the purchase of capital items such as machinery or vehicles to free up cash
Want to find out more on how to better manage your business cashflow? Click here to find out about our ‘Financial Management Toolbox’ programs.