Owning a business is a big challenge but it can be one of the most rewarding things you ever do – financially and emotionally – so long as you get the numbers right. Cashflow and profits are a tricky balancing act. Because even if your sales are high and you have money coming in, you can still encounter problems if you don’t have a healthy cashflow. Even companies that run a profit and are growing can get into trouble with cashflow. It’s a simple matter – if you need to pay debts or pay for supplies before you receive money from a sale, you will come up against cashflow problems. Where is the money supposed to come from when you are waiting for an invoice to clear, or a supplier to settle up? If your cashflow situation could do with some improvement, take care to follow these suggestions.
- Don’t Buy New
If you are having problems maintaining a healthy cashflow it is not the best idea to spend any available cash on equipment or vehicles. Even if it is more expensive in the long run to lease supplies or equipment, it actually makes more sense in cashflow terms as the monthly payments are lower and you do not use cash reserves to make a large purchase. Asset finance packages from a supplier like Ultimate Finance can make a difference when it comes to affording large purchases like cars or factory machines.
- Offer Early Payment Discounts
If you struggle to get money from invoices before debts are due, offer a small discount for early payment of invoices. Suppliers like to save money and you free-up cash for the day to day expenses. Be careful not to offer too big a discount, however, as you will cut into your profits.
- Let Go of Latepayers
If a customer or a supplier always pays late then consider the option of letting them go rather than harm your cashflow every month. It is hard to lose a sale, but you need to remember that if your cashflow suffers, your business will ultimately suffer.
- Negotiate Better Terms
Look at the terms you are getting from suppliers and try to arrange more beneficial payment terms so that you can structure your outgoings and not get into cashflow trouble. You can also look into the value of buying in bulk, or getting together with other companies as a buying cooperative – you may get better terms this way.
- Take a Close Look at Your Inventory
Don’t tie up your cash in items that don’t sell. You can’t afford to have things hanging around, hoping one day there will be a bigger demand. Clear slow-moving stock and focus on the faster moving items so you can improve cashflow and ultimately increase profits.