Cash flow is both the worst and best thing to watch for in the business world. It is something your business simply cannot thrive without. Maintaining a positive cash flow and attitude about the cash flow can be draining. With cash inflow from sales and cash outflow from purchases and expenses, there is a lot of information to keep track of. Even if you have an automated program to count for the inflow and outflow of cash, it takes a great deal of patience and skills to sift through it all. We hope these five tips will help you and your company maintain cash flow with little to no hassle.
Check Your Profit
You should review your company’s pricing structure regularly. Some things to look for include the margin you are making on your products and services, as well as the prices competitors are charging for similar products and services. Although having a lower price than competitors may look good to potential clients, having too low of a price could force you out of the market due to insufficient profit. If you have to increase your price(s), let your customers know so they don’t get thrown off track.
Control Your Expenses
- Look at each of your expenses and list them from largest to smallest.
- Typically, the material cost it takes to produce your products is the largest on your profit/loss statement. You could try to cut down on the material cost by searching for a supplier who offers a cheaper rate. Keep track of your production process to see if there is anything to improve upon or streamline.
- See if you are properly staffed. Having too short of a staff won’t allow for an efficient production process and having too large of a staff can cut into your payroll expenses.
- Review your insurance plans periodically; annually would be a good start.
- Try to earn a better interest rate with your banker. For example, extending the amortization period on your term loans can improve your monthly debt service coverage and your cash flow.
- You can consider switching your sales team to a commission-based salary if they were on salary previously.
Cash Conversion Cycle
Improving your cash conversion cycle can help maximize your profits and provide you with a better sense of where you can cut your losses.
- Limit your inventory by purchasing inventory for jobs you have orders for. Keep an eye on your turnover ratio, and adjust inventory levels if need be. Try not to let inventory go to waste. After all, wasted inventory is nothing more than lost money.
- Do you trust your customer’s creditworthiness? This should be something to look for before allowing them to become a customer, but it’s never too late to check. Be strict with your terms and limits. Require invoice support to prevent accounts from being successfully disputed.
Negotiate With Creditors
- Look out for discounts and take advantage of favorable pricing options and terms.
Simple Tricks Go A Long Way
- Check with your CPA to see if you can reduce your tax liability.
- Take advantage of accelerated depreciation options.
- Accelerate expenses and defer revenue when possible.
- Review available tax credits.
Keeping track of your cash flow gains and losses will help you both maintain it and guide you to shorten turnover on your receivables. These five tips will hopefully provide you with a good platform to start from.