The ability to effectively manage cash flow is vital for people who are operating businesses. If a business does not have a steady stream of cash coming in to offset the cash needed for expenditure, the likelihood of major financial debt or bankruptcy increases. Business owners can strive to prevent this from happening by being proactive in managing the flow of cash to maximize profits. Five basic tips on achieving good cash flow are described as follows.
Negotiate A Loan
Businesses that are struggling to maintain cash flow can seek a loan from a private lender or a bank. Emergency funds in the form of equity loans, invoice financing, or revolving lines of credit can help to alleviate minor shortages of cash flow. Although many business owners opt for short-term loans in this situation, long-term loans are sometimes a viable alternative. When taking out an amortized loan for the purpose of managing cash flow, businesspeople should keep in mind that they will have to pay on the principal plus interest.
Make Adjustments To Receivables
Negative cash flow often results from issues with accounts receivables, or the payments that businesses collect from customers. When customers get into the habit of delaying their payments to businesses, the output of cash flow can quickly surpass the intake of money. Business owners can get a better handle on their accounts receivables by centralizing payment locations.
They can arrange for one bank to handle all transactions, or can pay for a post office lockbox to store payments by mail. Another way to make adjustments to accounts receivables is to request pre-authorized checks or depository transfer checks from customers. Business owners might also consider charging fees on late payments.
Manage Financial Reports
A simple way to avoid cash flow problems is to be proactive in reviewing, managing and revising all of the financial reports that relate to business operations. Business owners who have a solid understanding of the information contained within these reports can use their knowledge to make sound decisions in regard to maintaining cash flow. Although some businesspeople find that it is necessary to hire an accountant to oversee financial reports, others decide to self-learn or to take a class. To save money in situations where cash flow is fluctuating, business owners can choose to seek professional advice only when the need arises.
Offer Competitive Fees
Businesses depend on consumer or customer payments to keep cash flowing at a steady pace. The most effective way to ensure that customers will continue to provide their business is to keep prices competitive with those offered by similar businesses for similar items. When attempting to increase cash flow, a business owner may decide to lower existing prices in the hope that customers will purchase more product. This strategy can work, provided that customers are paying with cash rather than on credit. As an alternative, business owners can try to regulate cash flow by enticing new customers to purchase goods or services, although this tactic may cost money in terms of marketing.
Save Money For Emergencies
Occasionally, an unforeseen complication or emergency situation will require a business owner to spend more money than usual, which can result in decreased cash flow. The sooner a businessperson begins to save extra money for the purpose of financing an unexpected problem, the better position the business will be in for managing cash flow during difficult times. When a business experiences a period where incoming cash flow is plentiful in relation to outgoing expenses, the practice of putting some of that income aside is a wise one for owners to undertake.
Sam Sinton writes for a number of online publications discussing both business and personal finance, he also runs a website dedicted to providing consumer information on logbook loans.