Many businesses aim to make as much profit as possible. While that is a good goal to strive towards, that ends up being just a part of the story. Truly successful businesses that last for decades are able to do that but also maintain their cash flow. A stable cash flow is what allows your business to stay relevant and competitive on the market for many years to come.
Chasing big profits usually leads new business owners to overlook the fundamentals of financial stability. Unfortunately, there are far too many factors that can greatly disrupt your cash flow. This is often the case when debts are due before you receive sufficient funds from your sales. All it takes is one month of financial mismanagement for the entire thing to collapse. In order to stop chasing your own tail in a financial sense, it is important to apply five proven methods in order to stabilize your company’s cash flow.
Implement incentives and penalties
It is important to develop a well-structured and organized approach to receiving payments from your clients. This can seem very tricky at first and it seems like it puts unnecessary pressure on everyone. However, serious business owners recommend setting up good boundaries first.
In fact, things do not have to seem so pressing. You can greatly encourage your clients to follow through with their payments earlier when you offer them attractive discounts. For instance, a popular option is to offer a discount on the value of the invoice when the payment is made within the first seven days.
You can also incentivize any future orders, which will keep your clients coming back. However, you should make sure that you let your clients know about any potential discounts, you can disclose all the necessary information immediately in your invoice. If the need arises, you can also penalize your clients by including extra fees on overdue payments. You should indicate this clearly in your contract so as to avoid any confusion and potential legal issues.
Eliminate any unnecessary expenses
Sometimes cashflow issues are not related to any outside factors such as your clients. In fact, sometimes it is the organization’s fault.
As a business owner, it is important to understand that even the slightest financial disruptions such as overspending on unnecessary expensive office equipment can throw your company out of balance, with rapidly accumulating costs. There are things you can save money on right now.
Perhaps, your business doesn’t require a lot of office space after all, or you have a lot of unsold inventory left to handle. Some of the unnecessary costs are due to periodic reasons, as you might not need certain assets all year round. It is important to establish a clear budget for all of your business assets and create a solid management plan. This will allow you to use your money for the right things and keep your business stable and growing in the long run.
Send invoices as soon as possible
How you send out your invoices is also really important. Do not take this as a pure formality that is to be taken for granted. It is commonly the case that miscommunication while sending out your incentives can create confusion, engender massive downtime and annihilate any business trust. Put together a good invoice that is going to be easy to read.
The terms should be outlined with all of the important dates clearly visible. For optimal results, you should implement a professional invoice finance management solution. This will give you plenty of headroom and make your invoicing feel like a breeze.
Monitor your inventory
There is nothing more disruptive to your cash flow than a lagging inventory. You should perform frequent inventory checks. This will allow you to identify any products that are not up to pace with your other products. This can create a massive financial bottleneck and cause you to bleed money on renting out inventory storage.
In case you have a heap of products that aren’t selling well, the best option is to sell them at a reasonable discount so that you can free up space and stabilize your cash flow for things that matter. In order to do this, you have to be very objective and avoid hoarding.
Create a forecast
Once you are able to follow your cash flow for an extended period of time you will be able to notice patterns. Things will become much easier as time goes on since there will be fewer things that can surprise you. Maintaining a cash flow forecast can help you stick to this habit. This forecast allows you to predict any potential financial surplus or deficit in your account based on current accounting data.
Operating any business at a high level carries with it a huge responsibility toward maintaining financial stability. This is by far the most notable factor for business longevity. There are things that can easily put your business finances out of balance, which is why it is important to know where to look and stick to a few essential cashflow methods. You can implement incentives or penalties to directly influence your clients. You can also take a closer look at your company’s expenses and eliminate any unnecessary costs. Make sure to send your invoices reliably and on time. Monitor your inventory frequently and make sure to follow a forecast based on your data.