Scaling your business and charting heights of insurmountable success require you to tap into your potential as a business owner. And one of the best ways to see to it that your business grows and reaches out to your target audience, is by maintaining positive cash flow. Cash flow is the source of life for any business. It does not matter on which scale your business operates. But an inability to maintain positive cash flow can cause a blow to the interests of your business and can even lead to its cataclysmic downfall.
Maintaining positive cash flow can help a business owner to invest in new opportunities, stay afloat during emergencies and crises and also plan well ahead of time. Plus, it is imperative for small business owners to pay attention to this crucial aspect more than anything else since they do not have endless access to funds, and neither can they afford to incur repetitive losses. That said, in this article, we shall talk about a few options that small businesses can consider when it comes to effective cash management. This is not an exhaustive list; however, young entrepreneurs and small business owners can note these tips and deploy the same to scale their business endeavors.
Table of Contents
Always Diversify and Spread Out Your Payments:
The first option for effective cash management that small businesses have is to spread out their payments. In simpler terms, it is advisable that you pay all your bills over a period of time rather than spending everything at once so that you are not drained out of your money. Spending everything at once might even put you at risk of not being able to clear your debts and bills to creditors and suppliers, and this shall then leave you in a financial and legal mess. One thing that you can consider doing is paying your bills closer to the due dates.
You can even try to negotiate with your suppliers and vendors to see if they are fine with extending your payables up to 90 days. While paying off your bills, see to it that you pay your rent and payroll before anything else. It is important that you know how to prioritize your payments so that you can manage your finances well. Pay your bills closer to the due date but be careful not to miss a due date as this could cause a severe blow to your credit standing.
Collect Your Payments as Quickly as Possible by Offering Discounts:
Another option that you have in cash management is to collect your payments quickly. Now, this part can be quite tricky because not many people want to pay their bills before the due date. This is exactly what we discussed in the previous point. Most business owners like to pay their bills closer to the due date to spread out their payments and maintain a good credit standing. That is why you need to offer your customers discounts and other perks to lure them into early payments.
You could also ask for deposits from your customers while taking orders from them. And you can also provide them with the option of online payment as this makes the entire process of payments easier and more flexible. Technology has made billing and payments quick and easy. Electronic billing allows you to set up automated reminders for payments and also tailor your invoices for customers.
Plan Ahead of Time for Cash Deficits:
Facing a shortage of cash while running a business is an extremely common phenomenon. There is nothing you can do to prevent a situation as such from rearing its ugly head. However, you can always stay prepared and absorb the shock with optimal cash forecasting techniques. You must always be ready to expect the unexpected and keep a rainy day fund at your disposal. Understand and acknowledge that cash flow will always vary. You cannot predict your finances appropriately, even with the best cash forecasting techniques. Therefore, always prepare for emergencies. Your rainy day fund must be able to keep you afloat for at least six months, even when your business in gyrating towards the abyss in times of crises.
Another option that you can consider as a part of your effective cash management strategy is to use a business credit card. This will help you pay your day-to-day expenses and keep tabs on your cash flow. You shall be better able to monitor all your expenses and plan for long-term investments.
Wrapping Up:
There are several options for optimal cash management. However, you need to understand the situation of your business to be better able to deploy the measures of cash management. The aforementioned tips are just a few simple ways to ensure that small businesses are able to manage their finances well. However, you can do some more research and see what suits your situation and take a step in the right direction.
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