Your business should have more money coming in than out. That is the ideal scenario. With more cash flowing in, you’ll be able to handle bills and expenses, and fund growth. More importantly, you can reassure investors and lenders that your business is in good standing.
Cash outflows are expenditures that include tax payments such as corporation and income taxes. It also includes loan and dividend payments. Fixed assets such as office furniture, equipment, machinery, and computers are also cash outflows. Tools, raw materials, and stocks are also expenditures. Finally, some of the most important cash outflows include daily operating expenses, leases, and payroll.
Cash inflows, on the other hand, are income that includes shareholder investments, and interest on investments and savings. A bank loan or overdraft, whether maintaining the regular amount or it’s increased, is also considered a cash inflow. Business income most notably, is the money paid to you by customers for products or services you provided them with.
Expenses and income, however, are rarely in-sync. Otherwise, it would be easy to run a business. The inflow of cash often lags behind. Because of this, you should keep sufficient cash in your business for daily operations. To do this, you must slow down the outflow of expenses, while speeding up the inflow of income.
Fortunately, there are numerous ways to increase your business cash flow.
Provide Easy Payment Methods and Schemes
According to the business advice website, Real Business, late payments are having a significant negative impact on British businesses. It revealed that 11% of small to medium enterprises (SME) are owed more than £100,000-£250,000 in late payments. Because of this, 24% of SMEs are having reduced profit performance, 29% can’t pay their suppliers on time, and 35% are experiencing cash flow problems.
To improve cash flow for your business, you need to address this concern. Foremost, revising your payment process, methods, and schemes is the best way to minimize instances of late payments. The goal here is to make it easier for your customers to pay you.
Your payment process should be seamless, done with a few taps or clicks. Your payment methods, on the other hand, should include major credit cards and other payment platforms such as WorldPay, PayPal, Stripe, and Payoneer. If you’re selling high-cost products or luxury items, you should provide different payment schemes for your customers.
There are also best practices to minimize late payments. You can send invoices to your customers immediately. You can offer discounts if customers pay early.
If your business requires cash payments, but some customers don’t want to pay cash, conduct a credit check before signing them up. While you can’t prevent a sale with such customers, you can charge a high interest rate instead.
Keep Your Suppliers Happy
Suppliers are considered business partners. And like customers, they should be kept happy. To achieve this, you should establish and maintain good relationships with them.
Having good relationships with all your suppliers mean you can get discounts and that you are prioritized as a client. Eventually, you’ll be able to negotiate a good payment plan. Remember that you need to slow the outflow of cash from your business and this is a good way to achieve that.
A good relationship with a supplier can also open up opportunities for a credit account. You can get the goods you need without paying up costs upfront. You’ll be able to offer lower prices to your customers and that can increase your profits.
Claim a Tax Deductible Expense
Claim a capital allowance benefit for businesses. There are certain expenditures that can be deducted from your company’s tax. Consult with your accountant to know more about this option.
Make Sure Your Products and Services are Priced Correctly
It is a common mistake for new businesses to offer their products and services lower than they should be. While it’s a good promotional strategy, it can harm your business in the long run. You have expenses and bills to pay. You need income to pay for those expenses.
Don’t underestimate your product. Its value, your expertise for developing it, and the work of your employees all combined should be the determining factors when you’re pricing your goods.
In the same way, you should increase the price of your products or services if necessary. When there are changes in the market or your competitor’s prices, you should adapt as well.
Improve Your Stock Control
It’s important to impose a stock control system when improving business cash flow. Check your inventory and take note of items that are slow-moving. These items tie up your cash the longer they stay in your stock room. With a stock control system, however, you are informed in real-time about products that are still in the stock room. If you are informed about these items, you can do something about them quickly. Slow-moving items can be sold at lower prices, or they can be bundled with other products to make them easier to sell.
Many businesses fail because business owners can’t manage their cash flow properly. You can start the tips here to get you started with improving your cash flow and avoiding the risk of business failure.