According to one US Bank study, as many as 82% of business failures are the result of poor cash flow. To prevent your business from failing due to lack of cash, experts recommend having at least three to six months of operating expenses in reserves.
JPMorgan Chase notes that most small businesses, however, only have 27 days’ worth. If you’re part of the majority, your business is at risk of failing if, for whatever reason, your incoming cash stops for one month.
You can minimize this risk by building up and maintaining a healthy cash flow. Below are a few tips from Owogram to help you do that.
Improve Your Accounts Receivable
If you charge customers on an invoice basis, one of the best ways to increase your business’s cash flow is by improving your accounts receivable.
Incentivize your customers to pay early or, at the very least, on time. Using cloud accounting tools for your business can help you send invoices out at the same time every month, and keep due dates consistent.
Make it easy for customers to pay via online portals and over the phone. Reward customers for paying early and penalize them for paying late.
Also, keep an invoice factoring company on retainer. Such a company can buy your overdue invoices and handle collections on your behalf.
Related: What is a business model?
Reevaluate Your Spending
If your business struggles with cash flow, the fix may be as simple as cutting small but unnecessary expenses. Assess your cash outflows to get an idea of where your money is going.
Do you pay for goods, services, or perks that you don’t really need and that add little to no value to your business? Are you paying fees for services you don’t use? Even the most trivial expenses can add up over time, so take a hard look at your bills to determine if and where you can make cuts.
Negotiate With Vendors
Because inventory and operational goods and services are necessary line items, you may not second guess the prices you pay for them each month. Suppliers and providers count on this, which is why many charge prices that are higher than what their goods or services are worth.
Though it may be a long shot, negotiate with your vendors to try to secure cheaper prices, better credit terms, or discounts for bulk orders. Doing so can help you cut costs considerably.
Lease Equipment Instead of Purchasing It
Like your inventory and operational services, you may need certain equipment to continue operating. However, you don’t need to necessarily buy said equipment.
By leasing equipment instead of purchasing it, you can eliminate the down payment and obtain a lower monthly payment, both of which can help you conserve working capital. You may also be able to deduct monthly payments from your taxes.
Related: What is a business plan?
Put Idle Money to Work
If you have steady cash flow already, consider putting idle money to work in an interest-bearing savings account. If your money is going to sit, it might as well make you money in the process.
Invest in Marketing
One of the most surefire ways to achieve and maintain a healthy reserve is to build your customer base via increased marketing efforts.
Create brand awareness, give off a strong first impression and expand your reach with a well-designed logo. If you’re on a tight budget, you can easily create your own company logo design with an online logo maker. Simply select a style and icon, add in text and play with the design until you land on something that speaks to you.
Don’t let your business fail because of poor cash flow management. Employ the ideas above to build up your reserves and maintain a healthy cash flow.