Cash flow problems can affect any business at any time. And when things start to kick in, it could leave you up the creek without a paddle. Because of this, all companies should be thinking about ways that they can protect themselves from potential pitfalls. Here are a few key ideas to get you started.
Make Better Forecasts
Although financial forecasting will never give you an entirely accurate view of what you will make and when you will make it, it is important to have a good idea. You need to know when your peaks and troughs will come around so that you can plan what to do. For example, if you are in the retail business, you will probably make the most of your money in the build up to Christmas. However, things are likely to be quiet after the first week of January. It goes without saying that a good month does not make a good year, so bear this in mind when making financial decisions of any kind.
Concentrate On Key Sellers
Streamlining your products and concentrating on your target market is an efficient way of protecting your cash flow. It is far better to do this than to try and sell everything and anything. Once you start to invest in marketing or irrelevant stock, you will be wasting money and making it hard to identify what is working in your business. It is inefficient, and will hinder your ability to project and predict future earnings.
Build Up A Surplus
What’s good for households is also suitable for businesses. Saving up for a rainy day is sound advice, so make sure you are building up a surplus of easily-accessible cash that you can use when you need it. Call it savings, call it an emergency fund. You can call it whatever you like, but it is essential. Saving when times are good means that in leaner periods you will be able to get some much-needed breathing space. While much of your profits should be used to grow and better your business, a proportion of them should be squirreled away. Choose a business savings account that gives you a little interest but also lets you access your funds when you need them.
Retain Your Staff
Be good to your people and you will reap the rewards. Losing valuable employees to rival businesses can have a negative impact on your cash flow in a surprising number of ways. First of all you will need to train new staff up to replace them. Also, unhappy employees are more likely to take time off work – possibly long-term – and your cash flow could be affected by having to bring in temps. Treating your employees well and paying them a competitive wage will mean it is more likely to keep them on board.
Find More Customers
Customers are the lifeblood of your business. Ensuring you are steadily growing your customer base will protect you from running into cash flow issues. This is especially true when you rely on one primary source of income. If you provide a service, for example, and only rely on one key client, if they decide to up sticks and leave you in the lurch, you will be in serious trouble. However large or small your customer base is, you should always be looking for more. Take some time out every week to concentrate on your marketing.
Open Up Credit Lines
One excellent way of raising funds is to open up credit lines for your customers. Doing this can give you a healthy boost to your sales, and it will also prompt many customers to buy at an earlier stage. However, one thing to bear in mind is that allowing consumer credit does come with risks. It is essential, therefore, to perform checks on people’s ability to pay. If you are selling to other companies, make sure to apply thorough business credit checks to avoid losing out. Another option – if you deal in products – is to consider leasing. It is cheaper than buying outright but gives you regular payments. It won’t take long for those payments to exceed the costs of the original product, even when you take into consideration repair and maintenance costs.
Be Sensible With Funding
You can raise funds for your business in a significant number of ways, but should you use them all? Some debt is good, and some debt can cause issues. Learning the difference between the two can stand you in good stead. In general, if you have a steady supply of sales, then taking out a loan or even a business credit card can help you build out your product base or rent a larger property. However, there is a fine line between safety and danger. If you borrow too much, your business will be in a hazardous position. All it will take is a lull in your sales, and you will face charges, interest payments and financial problems that are hard to escape.
Hire A Business Advisor
Business advisors can be very useful in helping you boost your cash flow. They will work with you to come up with long-term and short-term solutions to maximize your income throughout your business. You will need to find somebody that is a great fit for your company. You will need to trust them, and ensure they have the skills, experience, and the contacts to help you in the most efficient way. Although hiring an advisor or a mentor will cost you money, it will be far outweighed by the boost to your cashflow and profits.
Be Careful About Your Margins
One final thing: be careful with your profit margins. If you are only making tiny amounts of profit on the goods that you sell, it will only take a small change in market trends to eat into your cash flow. Large superstores can get away with this because of the sheer scale that they sell at, but smaller businesses should have a better mix. You should also be aware of anything that isn’t profitable. Loss leaders can work if you are large enough to soak them up, but they can cause problems for local businesses.
Can you help our readers with any other ideas on how to protect cash flow? They would appreciate hearing about your experiences, so don’t be afraid to join the conversation!