All profit-making ventures require a steady cash supply to run efficiently, hence the need for a robust cashflow strategy. Cash flow refers to the amount of money flowing into and out of business at any time. A business’s receivables, like sales proceeds, denote positive cash flow, while its payables are negative cash flow.
Proper cash flow management is essential because it creates more opportunities to enhance your business’s liquidity. High liquidity allows a company to invest in passive income generation, specialized labor, product design, marketing, and other opportunities that accelerate growth. Below are cash flow strategies to accelerate business growth.
1. Seek Professional Services
Although the cash flow concept is straightforward, implementing it in your business is challenging, especially for entrepreneurs. As an entrepreneur, the pressure to attract and retain clients may overpower your better judgment to maintain proper cash flow.
Moreover, some entrepreneurs and small business proprietors may lack the competencies to create and maintain a healthy cash flow system. Poor cash flow management is a reason why many businesses fail. Therefore, consider hiring a professional accounting service like a1corp.com.sg to avoid the pitfalls of the 82%.
The accounting service offers multiple packages, including consultation, to assess your business’s current cash flow status and make adjustments that accelerate liquidity and profit. Moreover, it includes budget accounting services payable monthly, quarterly, or semi-annually.
On the one hand, outsourcing professional accounting services to manage cash flow may seem counterintuitive because the goal is to stay liquid. However, unlike other payables like rent and utilities, professional accounting services are a solid investment that shall pay forward in a robust cash flow strategy.
Professional accounting services like 1Corp have years of experience and the professional eye to evaluate your current cash flow structure and propose restructuring. They offer services like opening chart accounts and preparing accounting books and reports to help businesses adopt a more effective cash flow strategy.
Besides outsourcing professional accounting, you can leverage accounting technology and use accounting software that centralizes your spending in a simple spreadsheet. The end goal for you, as the business owner, is to spend less time worrying about cash flow matters and more time crafting valuable products and services.
Also, cash flow differs from profit, meaning a profitable business does not automatically translate to a robust cash flow strategy. Therefore, investing in professional services should help you streamline areas you might have overlooked and accelerate your profit gains.
2. Invest Excess Cash
A positive cash flow is suitable for a business. However, having excess cash around only increases the risk of mismanagement and loss from theft. Therefore, consider monitoring your cash flow requirements to establish how much the business needs and invest the surplus in other income-generating ventures.
Viable investments that can generate an additional income stream for your business include the money market fund (MMF). According to one expert review, money market investing is advantageous for entities needing a relatively safe place to park cash in the short term. Moreover, MMFs have high liquidity, meaning you can easily pull the investment and profits from the fund and back into your business’s cash flow system when necessary.
However, ensure that the fund you invest in has insurance under your country’s relevant Deposit Insurance Corporation to protect your investment against loss. Besides the money market fund, you can deposit the business’s surplus cash in high-interest savings accounts and earn a passive income.
3. Consider Loan Options/ Lines of Credit
Most businesses avoid borrowing money due to interest rates and debt avoidance. However, companies can leverage strategic borrowing to accelerate positive cash flow and overall business growth.
Moreover, borrowing money when your positive cash flow increases your chances of receiving loan approval. Lending institutions like banks monitor a business’s cash flow statement to establish its creditworthiness. Therefore, strategic borrowing allows you to create a line of credit for your business that it can use as a fallback plan in the future should it experience cash flow problems.
However, you must calculate how much credit your business can get without being overleveraged. Second, the credit must be worth the return on investment (ROI).
Also, you must have a robust repayment plan and account for credit interest rates. For example, a business can utilize a loan to take advantage of a supplier’s early payment discount and clear the loan after clearing the inventory.
4. Offer Prepayment Rewards and Discounts on Early Payments
A positive cash flow relies significantly on your consumers’ capacity to clear inventory or pay for services rendered in good time. Therefore, consider incentivizing your consumers to pay a significant percentage or even the total amount due to your business upfront. Upfront payments allow your business to meet its payables on time and take advantage of similar supplier payment incentives.
Consider using incentives like a more comprehensive service package, discounts, bundle sales, and reward programs as incentives to motivate early payment among your consumers. However, ensure that your business can afford the incentives it offers to create a win-win situation.
5. Monitor Inventory and Make Necessary Adjustments
Inventory affects your business’s cash conversion cycle (CCC) of the time it takes to convert the money invested in stock back to cash. Besides delayed payments, the dead stock is another significant impediment to a positive cash flow. However, unlike delayed payments, the dead stock problem is much easier to solve.
All you need to do is monitor your inventory trends and identify products that overstay on the shelves, extending your cash conversion cycle. Consider offloading such products at all costs, including selling them at a discount or a loss, and avoid restocking them.
Instead, channel your cash flow towards fast-moving items with short CCC. Alternatively, negotiate with suppliers and have them give you stock on a consignment basis, whereby you only pay them for sold units rather than tying your cash in dead stock. The consignment inventory model is beneficial for new products without a ready market.
6. Send Invoices Immediately
An efficient cash flow system entails shifting from end-of-the-month invoicing models to instant invoices. Present your client with an invoice immediately after completing a task or sale to avoid instances whereby they push your invoice into their next month’s payables. Also, consider including invoice due dates and late penalty charges, if any, on the invoice structure.
Cash is king when it comes to running a business efficiently and maximizing profits. Therefore, consider implementing the cash flow strategies highlighted above to achieve and maintain a positive cash flow, accelerating your business’s growth.