Sure, there are a myriad of different financial tools and metrics you can use to monitor and evaluate your business and keep it on track. One of the most important is your operating cash flow. A lot of businesses use their cash flow data as a primary means of analyzing how well or poorly the company is performing. Moreover, managing your cash flow can also help you discover different trends and patterns in the overall results, which allows entrepreneurs to address crucial business shortcomings or capitalize on its strengths.
Let’s look at some sure-fire strategies small businesses can use to improve their cash flow.
Segment Your Business Statements into Three Sections
One of the most optimal ways to evaluate your cash flow performance and how it affects your overall liquidity and operations is by categorizing your cash flow into three sections. These are:
After that, it’s going to be simpler for you to calculate the total cash flow to derive a sales ratio. According to Jared Weitz from United Capital Source Inc., this is going to help you identify the real value of each dollar in your total revenue. When you analyze all three categories, you’ll get a comprehensive understanding of where exactly you’re gaining money and where you are losing it. This is also going to be a great metric when it comes to adequately budgeting for different areas and increasing cash flow.
Make the Cash Flow Process Easier
As per small business coach and author Melinda Emerson, there is no question that most small businesses tend to be “mom and pop” establishments, where the owners are not particularly well versed in finances or do not have much experience on the subject. This is why it is important to make things more streamlined and easier .
Such businesses understand a more basic approach to cash flow calculation, which is mainly measured in number of days. This form of cash flow calculation is child’s play because everybody is familiar with calendars, and that makes it simpler for businesses to break down their investments into days.
Go for a Periodic Payment Plan
As a business, there is nothing better than to have liquidity to inject into your working capital to keep things running. So, if you are offered an installment plan, take it.
What this essentially does is help keep a certain amount of cash flow within the business to make payments every month. Then you can pay your business’ utilities and bills while still having room to make your monthly payments.
Don’t Forget to Monitor Your Cash Flow
Another way you can know how to improve cash flow is constantly and consistently being in the loop of how much money is coming in and going out. Sadly, many small businesses neglect this.
This strategy is simple. Keep an eye on everything that is coming into the business and everything that is going out. You can do this on a daily basis, which is going to be a bit daunting – so the best option is calculating everything on a weekly basis.
Prioritize Your Cash Collections and Inflow
According to presentations skills specialist Bruna Martinuzzi, the best way to gauge the performance of your business is to closely monitor your accounts receivables as well as keeping a bird’s eye view on the outstanding sales. Small businesses should offer discounts for early payments in order to speed up their collections.
You have to understand that your customers are also looking for a win-win situation, and there is nothing better than to offer them a cash discount if they pay you as soon as possible. Plus, you are going to always know when to expect an inflow from your customers, boosting your cash flow.
Although many businesses consider cash flow as a secondary issue by focusing more on marketing and sales, as a small business looking to gain a competitive advantage, you have to be able to stay afloat.
Without a streamlined cash flow system, you are going to have a working capital deficit. And that means you will not be able to pay for more immediate and crucial components of the business.
Fatima Mansoor is a writer at Aepiphanni, a Business Consultancy that provides Management Consulting, Managed, and Implementation Services to business leaders and entrepreneurs seeking to improve or expand operations. She specializes in business & entrepreneurship, digital marketing, and health & fitness. Her focus is on creating compelling web content for small and medium businesses form diverse industries. She mostly writes for entrepreneurs and marketing agencies across the US, Australia and UK.
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