Cash is king when it comes to the financial management of your business. Whether your business is struggling or growing, managing the cash flow effectively plays a crucial role, and for many, it is the key to business survival. You would have heard the statistics that more than 60% of the businesses are still profitable but just have run out of cash. If you have just used most of your working capital, you might come up against a cash crunch, which prevents you from paying your suppliers to buy raw materials or even paying your employees’ salaries. Cash flow management is the solution when there is a time delay between the time you have to pay your suppliers and the time you receive the money from your clients. Hence you need to maintain the working capital, which allows you to make it through those crunch times and continue to operate the business. Cash flow management means delaying outlays of cash as long as possible while motivating the clients to pay it as quickly as possible.
How can you fix the cash flow problems in the business:-
- Short term financing
Short-term finances like a line of credit can be used to make emergency sales or to bridge the gap between receivables and payables several banks issue business credit cards you can use to pay the vendors.
- Long term financing
Large asset purchases like equipment in real estate must be financed with long-term loans instead of just working capital. It allows you to spread the payment over the average lifespan. You would pay interest but also have working capital preserved for the business operations.
- Speed up the recovery of some receivables
You need to build early and collect quickly. You must build as early as possible to guard against late payments and make the invoices as clear. It should be worth changing the billing practices, like in voice frequency. It would be best if you generated an invoice as soon as the goods and services were given instead of waiting until the month’s end. You might consider progressive invoicing while manufacturing the goods or delivering the services for huge orders. It is pretty easy to lose track and then ignore to follow up on the overdue amount. Experience shows that the longer you stay out of contact with your client, the less you will recover the amount you owe. You can even consider offering considerable discounts to the customers while they pay the bills quickly.
- Liquidate your cash-tied-up assets
If you have the equipment you no longer use, or your stock is becoming obsolete, you can consider selling it to generate quick cash. Non Working equipment takes up a lot of space and ties up the capital, which can be used productively in better places. For equipment that has been worn for a long time, we usually have a book value to the salvage or less, so a sale might result in some taxable gain. The game should be reported in the tax filing. You will incur a loss if you sell the equipment below to value. Hence cash flow management is essential.