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Being an entrepreneur isn’t just about buying inventories, securing funding from lenders, and putting a smile on the faces of your customers. Beyond all of that, you also have to hone some excellent managerial and financial skills – if you don’t want to hire an expert anyway. And one of the most important financial skills in business is the effective management of cash flow. Cash flow is very vital to the everyday running of your business. While you want to be on top of every situation that involves money coming in, you also want to keep track of what money is on hand and what is going out. Without proper cash flow management, your business might be heading for an inevitable crash without you even realizing it.
Difference between profit and cash flow
Before we delve into the discussion of how to improve your business cash flow, it is essential to point out a few facts. A common misconception in business is that a profitable business is one with positive cash flow. Far from it! In fact, it is very possible for a business to operate profitably and yet have a negative cash flow. A good example of this situation can arise when the bulk of what you earn as profits goes out to the court enforcement services, like the Penham Excel and DCBL, as a way of clearing your existing debts. There are, however, a number of different measures you can take to improve your business cash flow.
Use software to track your inflows and outflows
Thankfully, we now live in a digital world where everything and anything happens right on our mobile phones. With some accounting and invoicing software, business owners can now track their cash flow, that is, how many comes in and how it goes out. Effectively, it can automize a lot of your business processes (for example by matching payments to invoices), and also allow you to have a full overview of your business cash flows at any point in time. With this digital technology, you can always track all your clients who are due to pay you, and you can also avoid the possibility of missing out on a payment you are supposed to make, for instance, to a debt collection company, like Moorcroft group.
Send invoices out immediately
The more prompt your invoices are, the faster you will get paid. To have a positive cash flow, then, your inflow has to outweigh your outflow more often. And a good way to ensure this is by getting your customers and clients to pay for the products/services they’ve received as at when due.
Offer multiple payment options
The easier and more convenient it is for customers to pay you, the faster they will be able to pay you. In this digital world, payments are easier and faster than ever. It’s much easier for your clients to manage their payments online, as it is for you to receive payment. By offering them various online payment options such as accepting cryptocurrencies, credit cards, e-wallet, debit cards, or mobile payments such as Google Pay, Apple Pay, or PayPal, the more likely they are to pay you faster. And the better your chances of improving your business cash flows.
Reduce operating costs
The more your business operating costs, the more negative your cash flow is likely to be. Take the time to review your expenses, and identify areas where you can cut costs. Avoid spending money on unnecessary and redundant items and issues.
Encourage prompt payments, while discouraging late payments
As a way of encouraging your customers to pay early, you can try offering them a cash discount. Not only will this tactic bring in money into the business promptly, but it will also improve your overall cash inflows, which is exactly what a good business thrives on. In the same vein, you should also make it clear to your customers that just like early payments attract incentives, late payments will also attract penalties and extra fees too.
Experiment with your prices
Another way for you, as a business owner, to increase your cash flow is by increasing your prices. Changing, and in particular increasing, your price is something many entrepreneurs are scared to do. Indeed, there is no guarantee that increased prices won’t mean losing some sales, but it could also mean an increase in cash inflow. So, there is no harm in experimenting with your prices and finding out how price elastic your customers really are.
Diversify your business
The more diversified your business is, the better your chances of earning more income. If you are really focused on improving your cash inflow, then you should try diversifying your business. If you’ve been following one single niche all along, try adding another angle or feature to your business. For instance, if your business was all about shirt sales, it wouldn’t be so bad adding tie or maybe cufflinks to the list of things available for sale.
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This content is sponsored by Uday Tank.
Photo: Shutterstock