It is commonly seen that 8 out of 10 small and medium businesses fail within the first couple of years itself. The reason behind the failure or success of any organization of any size is known to everyone. The reason is, managing the cash flows. Here are some useful tips on managing your cash flows so as to keep your business running:
- Keep your accounting updated yet simple
It is very important to ask yourself, ‘how regularly do you keep a track of all your business numbers? Keeping the accounting books up to date is a must. Many businesses focus on completing their projects in hand and while doing this, they tend to forget to maintain their accounts. If you are not good with numbers, it is recommended to hire someone who would take care of the accounts. By maintaining your accounts through accounting software with the help of an expert, you can track the cash flows. With this, you will be in a better position to plan your projects efficiently. Lack of cash flow will not only lead to a lost opportunity but also will affect the credibility.
- Speedy recovery of receivables
Organizations that offer products and services have to bear many pre-project expenses. Either for supplies or for buying images, easy access to cash is essential. It is essential to send the bills early and collect the dues on time to avoid late payments. Progressive invoicing can be considered for bigger orders. A good option can be to ask your customer to pay a deposit before the start of the project.
- Use technology to your benefit
With the help of technology, simplify the payment process for your customer. For instance, add a link on the invoice from where the customers can process the payment. This is suitable for e-commerce and supply chain businesses. However, other businesses such as manufacturing, construction, and professional services should also take full advantage of the latest technology. For instance: if you own a construction company, you can use technology to develop an online walkthrough of your new site for the clients.
- Build creditworthiness
As a business owner, you need to keep track of your own and your company’s credit health. If you wish to avail business funding, your credit score should be good. Keep your business finances separate from your personal finances. Your personal finances will identify how you as a business owner would manage your company’s expenses.
- Clear up cash tied with assets
Do you have obsolete inventory in your warehouse? Think about selling the equipment that you are no longer using. With this, you can generate funds which can take care of your immediate cash requirements. Consider renting some equipment instead of buying them.
- Setup a cash reserve
If your business still has no cash reserve, it’s high time that you build one. A healthy cash reserve will assist you in your odd days. No matter what amount you set aside in the cash reserve, it will definitely support you when required. This cash reserve will help your business to be on the right path in the future.
- Fund purchase orders
Companies in supply chain business or which deal with bigger volumes of inventory can consider financing purchase orders. With purchase orders, you can easily come up to funding companies and ask them to pay the vendors. With this, you will be able to avail your supplies on time. Thus, you can complete your projects on time.
- Sell invoices
Popularly called as factoring or invoice financing, selling invoices can help you transform the invoices into assets. With this, you can avail funds with a small duration from 15 days to 90 days. In other words, by selling invoices, you get your pending payments earlier than expected.