A US bank study suggests that 82% of small businesses fail due to cash flow mismanagement. And why not? Even the top 25% of small businesses have only two months of buffer cash. This indicates a common problem faced by businesses of this size. Listed here are some tips that can help small businesses manage their inflows and outflows better.
Plan for Future
If you don’t plan according to your future, your cash management policies will receive repeated hits which can completely disrupt your finances. With the help of records like income statements and ledgers, predict your future outflows, and plan accordingly.
Taking your future needs into consideration, you can lay the groundwork for a loan which you soon may require, ask your debtors to pay early, or hold the payments for some time. There will be incidents that might take you for a surprise, no matter how thoroughly you plan, but If you take preventative measures, their impact might not be as severe.
Seek Favorable Payment Terms
You need to establish a great relationship with your suppliers to obtain favors from them. If you do, you can request extra time for your payments. This extra time can be utilized to make more immediate payments or to wait out for significant expected receivables from debtors.
Even a relaxation of a week or two can make a difference. The bottom line is maintaining good, trust-based relationships with your suppliers. The suppliers, too, value their customers and are open to such an arrangement given enough trust is established between the two parties.
Go for Order Financing
Scoring orders are easier for small businesses. The harder job is to fulfill those orders. This is especially true for manufacturing businesses.
Financing your purchase orders can help take that burden off your company’s internal finances. There are Financing companies that will help you by make payments for your orders. You can start the manufacturing process, complete and deliver the orders to clients, and pay the financing companies back. All without burdening your existing cash flows.
Your idle assets are lost opportunities. Whether it is obsolete machinery or the extra chairs in your office, or your old office property in Dallas which is no longer operational-whatever you don’t require immediately, sell it off. If you don’t, there is a great chance it will quickly depreciate and end up being worth nothing in future.
Don’t hold back thinking that you may need them in the future. You can always repurchase them or get better replacements when your cash flow has improved.
It is pertinent to note that while all these tips work well, they are primarily your fire-fighting tools. To maintain steady cash flow, adopt better spending habits. Repair instead of replace, buy used items, and spend only when it is necessary.