In this article, we will be talking about ways to improve cash flow of a struggling small business. This is that aspect of business studies that teaches entrepreneurs simple techniques that will help improve the cash flow of a struggling small business.
A company without cash is like a dead man walking. And that is why a conscientious effort needs to be made to ensure that the cash flows of a company is properly managed.
WAYS TO IMPROVE CASH FLOW BUSINESS STUDIES
Identify the relevant cash flows: I have seen many people wasting precious time looking for ways to improve their small business cash flows without firstly identifying what cash flows are relevant to the success of a small business.
For a meaningful cash flow improvement exercise to be carried out, the starting point is to identify what items give rise to real cash flows. Check out the article linked above to read more about relevant cash flow.
WORKING CAPITAL MANAGEMENT
Enormous amount of cash can be freed up for other uses simply by properly managing the working capital of your small business. The rest of this article will revolve around this idea of working capital management as it is the best way of releasing tied up cash.
Related: managing the cash flow of law firms
Speed up Collection: quick collection of money from your customers as quickly as possible is one of the easiest way of improving the cash flow of your business. As a small business owner, you may not have the resource to have an independent collection department but it will not hurt to have a process in place that will speed things up.
Delay payments: one way of improving the cash flow of a small business is by negotiating longer time to pay your suppliers. Care should be taken not to jeopardise cordial relationship with the suppliers.
Minimise discount: in as much as we want our customers to pay up quickly, care should be taken not to excessively discount our product to the extent that our margin falls below acceptable level.
Sell more for cash: cash is the most liquid asset that a business can have. Selling for cash is the most guaranteed way of improving the cash flow of a small business. This is dependent on the nature of the company’s business. Retail businesses are traditionally more cash based than say a furniture company.
Some basic financial engineering: years ago, I used to have the feeling that financial engineering connotes tricky ways of causing yet another but my perception changed when I started seeing some the products of financial engineering releasing cash for small businesses to smoothly run their business.
Using appropriate finance: determining the right financing choice for your current assets is a great way of releasing cash in to other operations of your business and this will subsequently help improve the cash flow of a small business.
Implementing just-in-time philosophy: one of the benefits of Just-in-time philosophy to a business is that cash is released for other cash generating activities of a business. Inventories is single largest capital tying components of working capital
Proper cash management: cash is king in every business and just like every other asset requires proper management. This article will not go into details of cash management but this article will give more information.
Good Cost management: proper cost management is the arch rock that determines profitability and liquidity in a small business. Larger businesses can be excused for being careless with cost management but not a small business as they can in most cases command premium on their services and products.
Generate more sales through aggressive marketing: the more sales you make, the more money you get. Writing high quality sales copy-write is a good way to start. The internet is also a useful tool to aggressively market your products.
Positioning for seasonal activities will ensure that a small business will not run out of opportunity to bring in more cash. Quality cash flow is lost by small businesses simply by not taking advantage of seasonal spike in demand. Agreement should be made with suppliers to flexibly meet the fluctuating demand of our business.
Proper asset utilization: a company’s asset is the only gateway to improving cash flow of a small business. There is no alternative to improving your cash flow other than properly managing your assets
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