The rule of running a successful business is simple: the company’s access to cash flow exceeds the cash it consumes. That’s why optimizing cash flow is the key to successful business financing. Handle this area poorly and you’ll face financial difficulty.
Ever business owner knows that they need to build a compelling product line, recruit a talented workforce, maximize sales and keep customers happy. However, these important tasks often distract them from another critical task: making sure the company continues to optimize cash flow so that it can survive in the phase of unexpected outcomes such as economic turmoil.
Rather than clinging to strategies such as safe pricing that may slowly drain your resources, follow these 4 tips to improve your cash flow’s bottom line:
- Discount account receivables
Factoring is one way to discount account receivables. Businesses can issue cash flow notes (legal promissory notes) against account receivables due to secure cash upfront from investors who buy the notes against future account receivables. Investors readily purchase these notes depending on the discount.
But companies who can’t issue cash flow notes can use accounts receivable financing for businesses. Companies may consult Business Collection Services for this. This can help optimize cash flow as well as save you from the issues related to the follow up on account receivables while the risk of bad debt is transferred to the entity factoring the debt.
- Proactive treasury management
Proactive treasury management systems can assist businesses in creating greater visibility and liquidity. Such treasury professionals advise companies as to exactly what cash they have, and where they hold it, as well as making accurate cash balance forecasts with confidence that their predictions will hold true.
As a result, treasury teams can be strong when it comes to decision making. And rather than leaving cash reserves sitting idle in banks, treasury teams, by having detailed insight of a company’s current and future balance, have the ability to put the company’s cash to work in the most efficient manner.
- Tight control over finances
The business needs to align payouts with pay-ins to make sure the company is maintaining healthy cash reserves and there is no requirement of short term borrowing to meet obligations. Moreover, it should invest in itself to generate profits and achieve economies of scale.
Also, business owners should avoid withdrawing funds for personal expenses from the business account, as it creates a cash flow crunch. While it is okay to withdraw share or residual profits or remuneration, delaying them to give priority to company operations is one of the best ways to keep cash flow healthy.
- Tight control over costs
Keep a check over costs such as cost of shipping, cost of goods and cost of sales. Look for areas to reduce these costs, such as putting jobs on a tender or having reasonable negotiation terms with suppliers. When it comes to payroll expenses, staff according to the needs of the business and add more people when sales see an uptick.
Pare the utilities to the basics and keep the physical footprint of your company on the low. You can also consider hiring remote teams and cutting down physical office space in favor of cash flow optimization.
