If you’re in business you’ll know how important it is to maintain a healthy cash flow. However, this can prove to be quite difficult as the business grows. This is especially the case if you operate in a market full of heavy assets that cost a lot of money. Think about a car showroom…they need to purchase expensive stock which they could end up holding for a while before selling. If you don’t properly manage cash flow you could end up without any and this is problematic because you might not be able to meet demands on the business (wages, etc.). Here, we’ll explore a few things your business can do to help with cash flow.
Consider The Lease Purchase Option
A lease purchase option is essentially an agreement that grants you the right to make money off an asset without owning it. It’s beneficial because a lease purchase option allows you to purchase an asset over a long period of time or, depending on the lease purchase option, you could rent it. Straightaway you can probably see how this is beneficial to cash flow. As we’ve seen, some assets cost a lot of money…think about heavy machinery for example. Instead of having to part with a huge sum of money, you can lease it instead thus protecting your money. Lease purchase options aren’t only used by startups, but by long standing businesses too.
The clear downside is that you’ll end up having to pay interest. However, you can also gain from an accountancy point of view as the asset depreciates over time you can use it to calculate your amortization expense…sure, it means some extra legwork accounting wise when you consider ASC 842 but it does mean you can protect that all important cash flow.
Maintain A Strong Yet Diverse Customer Base
If your customer base is diverse there’s less chance of your income falling off a cliff. Maintaining a diverse customer base is crucial for protecting a business’s cash flow and ensuring its long-term success. This can be achieved through several strategies, such as expanding the target market, offering new products or services, and seeking out new geographic regions for business growth. Diversifying the customer base also involves developing strong relationships with customers, understanding their needs and preferences, and providing exceptional customer service. A business can also use marketing and advertising tactics to reach new customer segments and stay top of mind with existing customers. Additionally, it can consider forming strategic partnerships with complementary businesses to cross-promote products or services and reach new customers. By having a diverse group of customers, a business can mitigate the impact of economic downturns, changes in customer preferences, or other external factors that may affect a single customer segment.
Negotiate Favorable Supplier Terms
If you can lessen the amount you pay to your suppliers you’ll help shield your cash flow. Negotiating favorable payment terms with suppliers can be a key strategy for improving a business’s cash flow. To achieve this, it’s important to build strong relationships with suppliers and communicate regularly about payment terms, delivery schedules, and other aspects of the business relationship. During negotiations, it’s helpful to have a clear understanding of the supplier’s payment terms and to be prepared to offer alternative terms that are mutually beneficial. For example, a business could negotiate longer payment terms in exchange for a volume discount or a commitment to purchase a certain amount of goods over a set period of time. It’s also important to be transparent about the business’s own cash flow situation and to explain why favorable payment terms are necessary. By establishing a clear and open dialogue with suppliers, a business can build trust and create a win-win situation that benefits both parties.
A Line Of Credit
Getting a good business line of credit (LOC) can be a valuable tool for improving a business’s cash flow and financial stability. To secure a good LOC, a business should first evaluate its financial situation and credit history to determine if it is eligible for a line of credit. Next, it’s important to compare the terms and interest rates offered by different lenders to find the best option for the business. To increase the chances of approval, a business should provide a detailed business plan, financial statements, and other relevant information that demonstrate its stability and creditworthiness. It’s also a good idea to have a strong working relationship with a financial institution, as this can increase the chances of approval and help to secure better terms. In addition, it’s important to use a business line of credit responsibly by only borrowing what is necessary, repaying the borrowed funds on time, and avoiding maxing out the available credit limit. With careful planning and responsible management, a business line of credit can be a valuable tool for improving cash flow and financial stability.
In short a line of credit isn’t something you should always rely on, but it can be good to have for those utter emergencies.
Inventory Management Systems
This is huge if the inventory on hand can be classed as perishable. If you buy too much inventory you’ll end up having to sell it off cheaply to make space for new stock. If the stock is perishable (like food) you won’t be able to store it all and may end up having to completely dispose of certain stock items.
Good inventory management systems can help you in regards to how you properly manage your inventory. They can stop you from overspending and overstocking. You can come up with these systems yourself, or you can purchase advanced systems to help you out. If you stock multiple products and lines, buying bespoke software can make things a lot easier than just trying to force yourself to be disciplined.
It’s vital that you try as best possible to preserve some semblance of cash flow for your business and by following one of these tips, you can make that possible. Having the right cashflow allows you to be confident in your business dealings and meet your business burdens accurately.