While being self-employed and running a business can have many benefits, there are also risks and stressors which come into play. Cash flow can be a big one. Numerous businesses end up having to close because of an imbalanced cash flow, and most entrepreneurs note that trying to effectively manage cash flow is one of the biggest things they worry about on a regular basis.
There are steps you can take to make this side of managing a venture more approachable. Read on for some ways you can go about managing your business cash flow better today.
Closely Watch Incomings and Outgoings
For starters, it’s almost impossible to get on top of cashflow issues if you don’t keep a close watch on the incomings and outgoings of your business account(s). You must know what financial position your business is in at all times, so you can make appropriate decisions.
In particular, keep a close eye on expenses. To manage cashflow, you have to be mindful of costs and on the lookout for places where you can reduce outgoings. It might not sound like it will make the biggest difference, but even decreasing several small costs can add up to cash flow health.
For example, reduce energy consumption; don’t stock up on office supplies just for the sake of it; buy items at wholesale pricing or on special; purchase secondhand rather than new; and keep using equipment for longer before upgrading to newer, more expensive versions. You may be able to find ways to reduce expenses when it comes to things like travel, transport and entertaining clients, too.
Also, consider whether you really need to rent large premises. If you can work from home or move to a lower-priced space, this can make a big difference to your annual budget.
Make It Easier and Safer for Customers to Pay You on Time
One strategy not enough people focus on when it comes to cashflow is making it easy and safe for customers to pay on time. If you allow your clients to pay on account terms, such as 30 days after they order something, you can end up in dire straits if many people end up having outstanding bills.
To avoid this situation, start by clearly discussing your terms with account-holders, so they know what is and isn’t okay. Then, put payment information, such as bank account details and the total amount due, in large font on your invoices. Put this data in a prominent spot, so when people go to pay a bill, they don’t have to look hard for the information they need.
It also helps to offer customers a variety of payment options. These days, people expect to be able to pay by the method that suits them best and often put off finalizing transactions if their preferred payment type isn’t available. Consider offering choices such as direct deposit, BPAY, direct debit for regular orders, PayPal, Apple Pay and numerous credit and debit card options.
Since security is such a big issue these days, you also need to choose a merchant services provider that has a focus on security. Let customers know their financial details will be secure and that you don’t store data. You can reduce fraudulent transactions by only accepting EMV chip cards for in-store purchases, too. This way, you won’t end up having to allocate so many funds to pay for chargebacks that occur because of fraud.
Have Less Money Tied up in Inventory
Another key step is managing inventory more effectively. To free up cash reserves, look at ways to have less money tied up in stock or parts. Start by closely analyzing the sales of each item. Really understand which items sell well and which are a waste of money and space. Know what to keep in stock all the time, so you never miss out on a sale.
Go through your current stock reserves to work out what’s old, obsolete, damaged or simply slow-moving. Discount these items, so you can sell them for some money and get cash coming in. Alternatively, talk to your suppliers to see if you can return any of the products to them.
You can also free up cashflow by testing out the demand for goods before you spend money on them. That is, pre-sell items. List new lines on your website or social media pages, and enable people to place pre-orders for them. This way, you can tell if something will work or not, but won’t have to outlay money in advance.
