Improve my cash-flow

On the top of the list of priorities of any business owner you will find – cash flow. Cash flow is a primary indicator of what is happening, or not, in any business.

Whether cash is abundant and not being optimally allocated to opportunities or cash flow is scarce due to large financial commitments, managing it is essential. These concerns would keep any entrepreneur up at night.

While cash is in constant evolution, having a clear vision of your business plan and sharing that plan with your team are essential to maximizing every dollar. Here are four recommendations to improving your cash-flow:

  • Prepare a financial forecast – Generally speaking, make a plan and map out your expected cash inflows and outflows and the timing thereof. Your financial forecast should reflect your knowledge of the marketplace from when you collect monies from customers to when you need to pay suppliers. Take into consideration your current financial commitments whether it be inventory for resale or acquisition of equipment. The forecast will show you when cash flow is available and when it is committed so you can adapt your future plans accordingly.
  • Negotiate favorable terms – Favorable terms has several meanings. These include:
    • Favorable terms with your banker with respect to timing of repayments and the lowest available interest rate.
    • Favorable terms with suppliers also includes when purchases need to be paid for. Some suppliers offer discounts for early payments. If your cash-flow permits, this can save your company lots of money. You can also negotiate longer terms to pay that can boost cash in the short term.
    • The best policy, however, is to collect your receivables as fast as you can. Offering incentives such as early payment discounts can help.
  • Properly manage receivables and inventory levels
    Accounts receivable and inventory are the two largest business assets where cash can be tied up for long periods of time. Proper management of accounts receivable and inventory levels are key to creating and maintaining positive cash-flows.Ensure your team is actively focused on soliciting payments from customers so that invoices are paid within the terms agreed upon. Keeping lines of communication open with customers will not only lead to better customer relations but will help avert losses from overdue accounts. Deposits should be made frequently so that cash becomes available, line of credit is paid down thereby reducing borrowing costs and your own expenses can be paid on a timely basis.

    Purchasing inventory months before it is needed or stock which doesn’t turnover quickly can lock up working capital for long periods of time. Understanding supplier lead times and how long customers will wait for orders should help you adopt purchasing policies aligned with inventory requirements. Your optimum level will be whereby you have sufficient stock to meet demands in the short term.

  • Focus on priorities – Your time is a precious resource. Put it to its best use – running the business. Communicate to your employees regularly that cash flow is paramount and what the target is so they make decisions with this in mind. Rely on your financial team to report back to you whether cash flow objectives are being met.

Subscribe to the Crowe BGK Newsletter(s):

Our Clients Speak