Cash flow stability is one of the key indicators of small business success. The sum of funds introduced and withdrawn into the business during the week, month, year, or even several years is the main financial picture of the business. Due to the fact that this value is at the foundation of the successful functioning of the business, the imbalance and uneven distribution of resources can not only weaken the enterprise, but also lead to its complete decline. Following simple tips, you can achieve a more uniform and efficient cash flow.
When to think
There are days when the profit clearly exceeds all your expectations, covering all planned and unforeseen expenses, but after a while the amount of incoming funds decreases and the business embarks on the thorny path of bankruptcy.
Positive cash flow is undeniably the goal of any business, and a stable positive cash flow is only successful. If you observe sharp peaks and falls when studying financial reports, this is an alarming bell that encourages you to optimize the allocation of resources. Untimely expenses, reaching a minimum cash flow, promise future problems, because the liquidity of your business does not allow you to properly cope with current and new expenses.
Credit line purchase
A credit line is a fairly popular and effective method of financing a business due to its flexibility. This lending scheme allows you to withdraw funds only when necessary, in case of excessive business expenses. You can repay the loan amount gradually or all at once - it does not matter. The credit line allows you to use the funds several times, covering the debts on your own schedule according to the conditions of your lender. You will not have to pay if you do not use the line. This is like a small stash in the far corner of the shelf, allowing you to cope with unforeseen waste in time.
Unlike a credit card, the amount of credit lines can reach hundreds of thousands of dollars, if not more. But as soon as you return the indicated amount, you will have to open the line again. And although you will have to pay off the interest along with the withdrawn amount, it will still turn out to be a much more profitable decision than not paying another bill or salary.
Tighter customer payment terms
If your type of business specializes in providing your customers with a net 30 credit payment service, you may encounter problematic situations due to the fact that many customers will use all the data they have 30 days to pay for goods or services. To prevent this outcome, you can resort to several measures.
Firstly, you can change the net 30 scheme to net 15 or net 10. Probably, some will not agree to pay for, say, 10 days, but many large customers may not even take this into account.
Start charging you a small but significant late payment fee. This will significantly reduce the number of late payments.
Assign a small discount in case of early payments, because even an insignificant opportunity to reduce costs will serve as a good motivation for payers.
Discussion of new conditions for cooperation with suppliers
Kindly contact your suppliers with a request to review the terms of cooperation. This move will work well with long-standing partners with whom we have already developed good and trusting relationships.Perhaps it will not be difficult for them to extend the payment terms from 30 days to 45, or perhaps even 60. This will help to stay afloat longer in critical moments, having some head start.
Payment of quarterly taxes
No matter how trite it may sound, but it really helps to significantly stabilize the financial flow.
Timely payment of taxes is important not only for legal reasons (the state does not like to wait for its money), but also helps to avoid heavy fines and debts. Paying a certain amount, dividing it by a year, is much simpler than all at once, taking into account the monetary punishment.
Credit Card Minimum Cost Financing
Sometimes, even in calm times, there is an extreme lack of respite. One way to "relax" is to finance small expenses - office, corporate parties, equipment upgrades - using a business credit card.
A credit card is a kind of short-term loan, in case of timely payment of which it is possible to avoid the accrual of large interest. There are even some business credit cards with 0% per annum in the initial period! The so-called "credit card" allows you to get a few extra weeks to cover all necessary expenses.
As soon as you master the skills of stabilizing cash flow, it is worthwhile to engage in its modeling and forecasting, if this has not been done before. You should always monitor your net cash flow and final cash balance every week and every month.
In the event of cash flow fluctuations in certain areas - for example, a fall in the middle of the month or the end of the month - it is worthwhile to study profit and loss reports and optimize the allocation of resources to increase solvency, repay debts or finance several purchases. Consistency and vigilance will provide you peace of mind and allow you to focus on other pressing business matters on the path to prosperity.