Insufficient cash flow results in roughly 82% of all business failures in the 1st five years, according to a recent study done by Business Insider. Can you see where your money is going? Here are 3 easy ways to improve your cash flow.
Cash flow is most likely your main concern especially since most businesses don’t make a profit until after their first year, according to Forbes. We sat down with Steve Minosky of Davis and Associates Certified Public Accountants based in Naples, Florida to find out what three things all small business owners can do to improve cash flow.
EVALUATE YOUR INVENTORY
Is anything from the past few years still sitting in your warehouse or back room? Take an inventory check and make note of the goods that haven’t been moving at the same pace as your other products. As unsold goods sit and collect dust, new product is not able to move in due to space. Instead of buying more of what doesn’t sell, get rid of it—even if you need to sell it at a discount. It’s difficult to walk away from products you truly believe in, hoping that someday you’ll magically see heightened demand, but that almost never happens. Be impartial, not emotional.
MAKE THE MOVE TO ELECTRONIC PAYMENTS
If the owner pays electronically, they can wait until the morning of the day a bill is due to make payment. This buying of time improves your cash flow. You can also use a business credit card as some offer a grace period as long as 21 days, which can do a lot to increase your cash flow—you might even get cash back! Along with electronic payments, try sending invoices out right off the bat, this allows payments to come in more quickly and will naturally improve cash flow.
RUN CONSUMER CREDIT CHECKS
If a customer doesn’t want to pay you in cash, then be sure to conduct a credit check—especially before you sign them up. If the client has poor credit, you can safely assume that you won’t be receiving payments on time. As desperately as you might want to make the sale, the late payments will hurt your business’s cash flow especially if the owner experiences this more than once. If the owner opts for a sale despite seeing questionable credit, it could be smart to set it up with a higher than average interest rate to ensure proper payment.
A hearty cash flow is typically a result of operations and management than run smoothly and efficiently; but you can help avoid being one of the 82% of businesses that fail in their first year by focusing on inventory, making electronic payments and running consumer credit checks. You can see where your money is going, so you can keep your business happy, healthy and prosperous.