A successful business is all about profits. If the balance between revenue, profit and expenditures go out of proportion, it will be difficult to sustain a business. It is hence very important for business owners to constantly think and find ways of how to improve cash flow in small business.
A good cash flow ensures that you are able to generate and use cash. If you have cash on hand, you have better buying power. Besides, it also offers protection against loan defaults or foreclosures.
Cash flow must be optimized, and that means much more than simply increasing your revenue. The larger picture of keeping your business moving will include cutting expenses, speeding up invoicing and earning interest on your different accounts among others.
Here are five ways how to improve cash flow in small business:
Reevaluate Your Product Pricing
Are you selling your products for too less a price? Reevaluate and reassess to see if the product you are selling is worth being sold at a higher rate.
There is always a fear of the sales dropping if you raise your price too much. While that is a possibility, it need not always be the case.
Increase in product price also leads to a rise in the perceived value of the product. Customers who haven’t utilized your offerings are likely to use them if they need a big investment at the very start.
Low product pricing might lead your consumers to think that you are not too good. Setting a very high price for your product is also dangerous as you might lose your place in the market to your competitors. So, you need to find the middle pricing that will help boost your cash flow and not result in loss of sales.
Sell Unused and Outdated Equipment and Inventory
Another way of how to improve cash flow in small business is to not keep unused, non-working and outdated equipment and inventories. It not only takes up a lot of space, it also ties up capital that can actually be used more productively.
Inventories owned for a long time will have a book value equal to its salvage value or even lesser. Hence, a sale might lead to a taxable gain. You must make it a point to report this on your tax filings. If you were to sell lesser than the book value, you are likely to incur a tax loss. You can use this to offset other profits of the business.
It is a good idea to sell all inventories which are not likely to be used in the next 12 months. Use it only if the costs to keep it are very less and the money you get from the sale is negligible.
Employ an Expert Accountant and Acquire a Line of Credit
Think of hiring an accountant as an investment rather than an expense as an expert and experienced accountant will be able to review cash-flow projections and results, and offer you advice on areas that you might not have paid attention to.
It is always a better idea to have a line of credit in place in order to cover short-term requirements and emergencies. It is always a much more effective way to manage your cash flow than trying to seek a loan in haste. The best part is that you can withdraw from your line of credit as and when you require it. Moreover, you need to pay interest only on the amount that you borrowed.
Invoice Regularly and Apply Late Fees
Make sure that you distribute invoices on a particular date, and stick to it regularly. This helps the customers plan accordingly and also eliminates any confusion whatsoever.
Applying late fees is an easy way of improving cash flow. However, in order to make sure that your customers do not feel cheated, you must make your late policy very clear on invoices. Print it at a place where it is easy to notice.
Ask for Deposits on Custom Orders
There is no harm in asking for a security deposit while working with custom orders. The security deposit must be equal to a minimum of 50% of the entire cost.
Deposit reduces the chances of financial loss in the worst scenario. Include this in your policy, and ensure that your customers are well aware of this.
While the list of how to improve cash flow in small business is endless, the five ways mentioned above will certainly help your company have more cash at any given time.