In the short term a business can run into serious difficulties through cash flow issues even though it may be very profitable. Improve your cash flow management and in the process you can reduce your business problems.
1. Credit Control
Make sure that you have a credit control system in place including setting credit limits and payment terms for customers and following up on all debts on the due date. Stop providing credit terms to bad payers to avoid bad debts and to save management time. Understand your large customers payment systems and use them to ensure you are paid regularly and promptly. Deal with all customers queries immediately. Offer a discount for immediate payment.
2. Reduce Costs
Determine whether an expense is necessary before you incur it. You will be surprised what you can save by questioning its absolute necessity in advance.
Review your suppliers current offerings and see if you can improve them either with them or from new suppliers. Try and reduce the cost to you and also extend payment terms.
Avoid holding unnecessary stock as it has to be financed. Only order what you need when you need it. Sell off old or outdated stock for a quick cash injection. Avoid having stock that will become obsolete. Identify what stock your customers buy and when so that any seasonal stock items are properly planned. Place limits on stock to be ordered. Have a strategy to identify and reduce slow moving stock. Apply the 80/20 rule to stock and plan accordingly (20% of your stock will provide 80% of your sales).
Review your cash forecasting on a regular basis whether it may be daily, weekly or monthly. Be on top of what is coming in and going out so that you have advance notice of potential difficulties. Forewarned is forearmed especially with cash flow management.
6. Business Review
Review your business in detail to identify areas where cash management can be improved. Can sales invoices be emailed to customers? Can debtor payments be made by bank transfer? Can purchases be delayed? Can you increase prices for some products or services? Should some products and services be discontinued? Can you arrange customers payments on specific dates so that they tie in with payments dates agreed by you with your own suppliers.
Have a good working relationship with your bank so that if you have a crisis you may have somebody able to assist you in the short term.