Financial restructuring is often a last resort, but invariably the most effective one. The envi...
One golden rule that successful businessmen, investors, VCs etc., follow is that “cash is the lifeblood of a business”. Mismanagement of cash flow by many businesses has led to the downfall of many fundamentally sound businesses. Small businesses often find it challenging to get a grip on the cash flow of their business, but cash flow management is quintessential for the survival of their business.
This article discusses the 10 best ways to increase cash flow into your business and streamline the business further.
Some of the essential ways to increase cash flow into your business are as follows:
One of the most effective ways to increase cash flow in your business is by regularly monitoring and documenting the cash flow process. If you fail to monitor the cash flow, you will not be able to track the accounts receivables and payables regularly. Consequently, you will not be able to generate projections and statements related to cash flow. This prevents the management from getting a true picture of the affairs of the business, and hence they cannot take decisions properly, leading to a loss in business.
Every business runs on the lifeblood of sales and invoices. You cannot get the payment unless you send invoices on time. Make sure you send invoices on time so that cash comes in faster.
Another way of increasing the cash flow is by getting your customers to make payments on time. This is easier said than done. However, you can adopt several strategies to make your customers pay on time. Firstly, you should make it a practice to constantly remind your customers to make payments. Secondly, incentivise your customers to make payments on time by giving them bonuses. Vice versa, you can penalise them for making late payments by charging a late fee. Another strategy you can adopt is invoice factoring, where you sell unpaid invoices to a company at a discount in exchange for immediate cash.
Suppose you find your cash flow to be poor. In that case, it is time to increase your pricing after checking the competitor’s pricing, increase the price of inventory/equipment used, whether the pricing compensates for your efforts made and whether your prices are too making your services come across as cheap. There is a possibility that your prices may be too low, and you may be selling yourself short. You should strike a balance by keeping your prices competitive and fairly compensating for the hard work and your employees.
If you find that the market has become saturated and highly competitive, it is time to expand the scope of the services offered by your business and include more products and services on your shelf. You can incorporate new products and services, keeping in mind the challenges businesses face due to the after-effects of the pandemic. You can also create a new marketing strategy for your business to increase your reach. Further, you can encourage customers to buy more from you to increase your ticket size, thereby generating better cash flows for your business and taking special care of your loyal customers by incentivising them.
One way of increasing cash flow is by increasing the number of revenue streams. Another ignored way of increasing cash flow is reducing cash by moving out of the business. This can be achieved by cutting out unnecessary expenses and finding alternatives to contain the outflow of cash from the business. Another way of containing cash outflow is streamlining the business processes, making them so efficient that they dramatically reduce the cashoutflow.
You should negotiate with your vendors and buyers with whom you are purchasing your inventory. You can negotiate better terms and ask for better discounts while purchasing bulk inventory from your suppliers. You can further negotiate on better credit terms and prices.
You can also increase your cash flow by paying your vendors at the right time to avoid payment of late fees. Additionally, you can compare other options in terms of buyers and products available in the market and pick the right vendor who provides you with the best rates.
Banks these days are also offering the option of providing business savings account services to their customers where they hold their reserves and pay a good percentage of interest rates for a fixed time.
Cash flow can also be increased by taking a loan which can allow you to expand your business, purchase new inventory, take over a profitable project, purchase new equipments, and unexpected expenses.
One practice that should be integrated into your business is finding unused/obsolete/inefficient machinery and selling/replacing them with such equipment that increases the business’s efficiency and productivity, bringing in more business.
Leasing out machinery should be considered while purchasing new machinery or equipment for your business. It is not advisable always to lease out machinery as it can increase your fixed asset cost. Still, if you are having problems with cash flow, you can resort to leasing machinery, which means low monthly payments.
The best way to increase the cash flows into your business is done in those times when your business is not facing a cash crunch. This is when you should prepare plan B to fall back on. Most businesses face the problem of cash crunch, and therefore in good times, they should save as much as possible for the rainy days apart from the above mentioned strategies. Instead of going yourself all out to increase cash flows, take the help of virtual CFO services offered by Enterslice.
Read our Article: All you need to know about Cash Flow Statement