How Small and Medium Businesses Can Maximise Cash Flow
3 min read
One of the biggest challenges of entrepreneurs is how to maximize cash flow in their business. Studies show that more than 80% of small and medium businesses fail because of their terrible management regarding their finances. As an entrepreneur, it is critical to look for the most effective ways to improve your cash flow so your business has a future. Here are a few tips on how to maximize cash flow.
Predict Your Income and Expenses
If you want to maximize your cash flow, you will need to have an idea of how much money you make and how much you spend monthly and annually. If you know what is your current balance and its performance, predicting future potential peaks and downs will help your finances planning a lot. Usually, SME entrepreneurs aren’t prepared for scaling their business quickly, but having a budget that plans that type of scenario may ease the process of adaptation. Having a plan B will ensure your company survives any future turmoils and stabilize the budget for the long-term.
Speed Up the Cash Flow Process
Some entrepreneurs do not believe that paying on their terms and schedule is possible, but when the trading policies are written clearly that happens more often than thought. As an entrepreneur, you’ll need to become more ruthless concerning collection your invoices so you achieve quick and stable cash flow process for your venture. Take a more flexible approach and offer your clients different types of payment methods, while keeping tight time schedules. Plus, reward those who pay their invoices early and on time with small discounts, while punishing those customers who are late with their payments with charging interest.
Collect Debts Sooner
You’ve probably experienced delayed payments at least once in your business career and know that it’s the worst financial nightmare. By controlling the debt collection you will avoid cash crunches and create a smoother cash flow, giving you the opportunity to move those funds into new investments. Enterprise League recommends using electronic payment and billing methods to cut costs and save time. Plus, invoices are processed quicker in an electronic form, thus shortening your collection period.
Agree on the Payment Terms Before Outsourcing
When outsourcing work to a contractor, sometimes you’ll find yourself obligated to pay the invoices beforehand. It is a tricky situation, with more money going out of your pocket than coming in, and if not managed properly you’ll find yourself in a tough financial situation. To avoid this, state your payment terms before signing the contract and put things in the clear, so you’ll be maximizing your cash flow and protecting your financial stability.
How does cutting costs improve cash flow? Sometimes companies keep paying for services, despite them only being needed for a short period of time. Whether it’s social media marketing, legal services or something else, you better be careful, otherwise your budget will become overburdened. That’s why you need to analyse the situation and cut unnecessary expenses that are not needed at the moment. However, that doesn’t mean you won’t need them in the future. We recommend to stay in touch with the outsourcing services and assure them when the moment arrives, you’ll hire them once again.
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