As a business owner, you know that one of the biggest risks you face is bankruptcy. This can happen if you're not careful with your cash flow management. “Cash flow management can make or break a business, with up to 82 percent of business failures being attributed to poor cash management.” – said by Kevin Fitzgerald, Managing Director – Asia, Xero in OCBC Bank’s articles.
Making more money than your business is spending sounds simple in theory but having a positive cash flow encompasses much more than profitability. Although it may be easy to bring in more money than your business is spending, this does not always mean that you will have a positive cash flow. To have a positive cash flow, your business must also consider other factors such as expenses and investments.
There are several things you can do to improve cash flow for your small business. These 10 tips can help you get started:
1. Sending invoices out quickly
Most small businesses lack a system for processing invoices, relying instead on Excel sheets, spreadsheets, emails, and pen and paper. This often leads to lost track of which invoices have been sent to customers and which are still pending.
As a business owner, it's easy to lose track of how many invoices you're creating daily. Have they been sent out? Do they correspond with your customers' needs? It's important to stay on top of these details to keep your business running smoothly.
One of the biggest factors leading to cash flow problems for businesses is when customers don't pay their invoices right away. To improve your business's cash flow, it's important to send out invoices quickly and to mention the payment terms clearly.
One of the best ways to do this is to use cloud accounting software like QuickBooks Online or Xero to create invoices, and email the invoice to your customers. The business owner can then rest assured that the customers have received the invoice.
2. Create a cash-flow forecast
Making a cash-flow forecast is a crucial part of getting a business off the ground. It helps you keep track of the finances and see where your money is going and when it will be coming in. Having it available in QuickBooks Online or Xero is a great way to keep track of it and presents it in a format that is easy to find the information you need.
3. Review payment terms with suppliers/creditors
When it comes to working with suppliers, it's often possible to negotiate better terms to help manage your cash flow and even improve your relationship with them.
It's always a good idea to stay up to date on your current contracts and take advantage of any deals or discounts for prompt payment. Paying early is a great way to build relationships with other businesses.
It may also be worth finding a competitive supplier and getting prices to compare.
4. Reduce unnecessary spending
The best way to ensure that your company has enough money is to make wise decisions about spending. This could be done by evaluating each expenditure and seeing if it is necessary, or if there are cheaper alternatives available.
If you're looking to cut back on expenses, start by evaluating all your subscriptions and expenses to see if there are any that aren't providing real value to the organization. By doing this, you can make more informed decisions about where to focus your budget.
5. Streamline processes
If your processes are inefficient, it costs you money in both time and resources. You can streamline your processes by using the appropriate tools for the job, automating where possible, and training your team members to work efficiently together. By taking these steps, you can improve your bottom line and avoid costly mistakes.
For example, using the right software and tools is a foundation part of good cash flow management. Also, the automation functions can be found in QuickBooks Online and Xero. You can examine the differences among them, and which is more suitable for your business.
Likewise, if you’re not sure where to start, look at your worst-performing processes to see if there is room for improvement.
6. Maintain a good relationship with your bank
A good relationship with your bank is important for several reasons. First, your bank can provide you with valuable advice and assistance when it comes to managing your finances. Second, if you have a good relationship with your bank, you may be able to negotiate better terms on loans and other products. Finally, a good relationship with your bank can help you avoid problems down the road.
There are a few things you can do to maintain a good relationship with your bank. You can make sure that you keep up with all your payments. This includes making timely loan repayments and credit card payments. Also, try to avoid overdrawing on your account or bouncing checks whenever possible.
7. Offer Flexible Payment Options
As a small business owner, you might not think about offering flexible payment options to your customers. But did you know that providing different payment methods can improve your cash flow?
Here are a few reasons why:
It shows that you are customer centric.
When you offer different payment options, it shows that you’re willing to work with your customers to make things more convenient for them. This can go a long way in building customer loyalty and repeat business.
You can get paid sooner.
If you offer customers the option to pay by credit card, they may be more likely to pay right away instead of waiting until they have the cash on hand. This can help you improve your cash flow because you’ll receive payment more quickly.
It can help you attract new customers.
Some customers may only do business with companies that offer flexible payment options like credit cards or PayPal. By offering these options, you’ll be able to attract new customers who might not have done business with you otherwise.
You can reduce bad debt.
If you offer customers the option to pay by credit card, you’ll be protected if they don’t pay their bill on time. This can help reduce the amount of bad debt that you have to deal with because you can charge late fees or turn the account over to a collection agency.
It can help you manage your finances.
If you use a software like QuickBooks Online or Xero, they will help you track your sales and customers. This information can be helpful in managing your finances and making sure that your business is running smoothly.
8. Some business functions you can outsource
Outsourcing is often seen as reducing costs, but it can also be used as a tool to manage cash flow issues.
There are many business functions that can be outsourced, such as accounting, human resources, payroll and even CRM. By outsourcing these functions, you free up your own time and resources to focus on other areas of the business.
Outsourcing can be a great way to improve cash flow in your business. It allows you to focus on other areas of the business while still getting the work done that needs to be done.
9. Leasing can help cash flow
Cash flow is important to every business, but it can be especially difficult for small businesses. One way to ease the cash flow crunch is to lease instead of buy equipment. Leasing offers many benefits, including:
No large upfront costs: When you lease equipment, you can get started using it right away without having to come up with a large sum of money upfront. This frees up cash that can be used for other purposes, such as expanding your business or meeting day-to-day operating expenses.
Fixed monthly payments: With leasing, you know exactly how much your payment will be each month, making budgeting easier. And because leases often have built-in maintenance plans, unexpected repairs won’t break the bank either.
10. Liquidate old inventory
If your business is like most, you probably have some old inventory taking up space in your warehouse. Maybe it's seasonal items that didn't sell last year, or maybe it's just product that's been sitting on the shelves for a while. Whatever the reason, holding onto this old inventory is tying up valuable cash flow that could be put to better use elsewhere in your business.
One option for freeing up this cash flow is to liquidate your old inventory. This can be done through several channels, such as online auctions, consignment shops, or even selling directly to customers at a steep discount. While you may not get full retail value for these items, getting rid of them will allow you to free up much-needed cash flow while also clearing out some space in your warehouse.
If you're thinking about liquidating some of your old inventory, take the time to consider all your options and find the best channel for selling those items. With a little effort, you can quickly improve your business' cash flow situation by getting rid of things you no longer need!
How Acc Pro (Singapore) can help your company
Are you looking for assistance in managing your company's cash flow? Acc Pro (Singapore) Group can help you with that. We are a professional accounting firm that provides a wide range of services, including financial management.
We understand the importance of proper cash flow management for businesses. After all, it is one of the most important aspects of running a successful business. Without proper cash flow management, businesses can quickly find themselves in financial trouble.
If you are interested in learning more about how Acc Pro (Singapore) can help your business with its cash flow management needs, please contact us today. We would be happy to discuss our services with you in further detail and answer any questions that you may have.