7 tips for building your cash flow from the BDC
Cash flow the lifeblood of any business and needs to be watch like a hawk, but sometimes there will be negative cash flow and you will need to minimize the impact and plan ahead to be ready when that time arrives. According to the BDC, here are seven ways to find more cash in your business.
1. Develop a cash-flow planner and track cash throughout the month
Using a software tool or a spreadsheet, record your month-opening bank account balance and all anticipated cash inflows and outflows. This kind of budget allows you to assess your situation, examine risks and plan for problems, such as the loss of a key customer. Then, track your cash as it comes in and goes out throughout the month. That will help you stay on top of problems and make adjustments, such as delaying discretionary payments.
2. Closely monitor financial statements
Examine monthly financial statements line by line to look for red flags. Keep a close eye on key indicators of your business’s health, such as changes in the gross margin and inventory turnover.
3. Look to relationships with your customers and suppliers
Good customer and supplier relationships can help you wring more cash out of your business. For example, you can turn sales into dollars faster by offering discounts to customers who pay early. Suppliers can help by extending payment terms. However, it takes two to tango. Work on improving customer service and make sure to pay suppliers consistently.
4. Get tough with deadbeats
This is no time to play Mr. or Ms. Nice Guy when it comes to collections. Entrepreneurs need to be conscientious in pursuing late bills. Customers have to pay or else you’re just financing their business.
5. Focus on inventory management and product offerings
If sales are down and inventory turnover is slowing, you have to be aggressive in clearing out stock. While you’re at it, analyze your product lines to see what’s selling and what’s just taking up space. Look to your sales force to help you reduce inventory and weed out unprofitable product lines.
6. Use debt to protect your working capital
It’s important to avoid paying up front for long-term investments, such as equipment purchases or a building expansion; that will just tie up working capital. You’re better off using debt to finance these projects. Also, consider refinancing fixed assets to free up capital.
7. Cut waste and streamline operations
Boost your company’s productivity and profitability by eliminating bottlenecks, overproduction, inefficient equipment and other sources of waste. Employees are your best source of ideas, so get them involved.
The BDC also offers a FREE E-Book on the subject that you may want to check out at this link.