Small business owners look at growth as the answer to the cash flow problem. After they achieve their goal of growing their business, there are several cash flow problems that crop up in the process. In order to maintain sustainable cash flow, businesses should look at how productivity directly impacts the cash flow of the business. Here are a few steps that small businesses should follow to manage their cash flows when they are looking to grow their business:
Increase the pace of collecting receivables:
Businesses should increase the swiftness in the receipt and processing of receivables. Subscribe to a lockbox service, post office boxes provided by banks in order to process checks in remote locations. Request customers to pre-authorize cheques so that the banks can field payments at specific intervals. Your business should have one centralized bank account and you may ask customers to pay with depository transfer checks and cheap fund transfer options.
Constrict the number of credit requirements:
To improve relations and gain ground in the work field, small businesses tend to extend credit to customers. Research can help you determine and extend your credit to each customer. You may need to learn if your business is growing, whether you are paying your bills on time and whether you are experiencing cash flow problems.
All clients should fill out their information on credit application forms and check references. You can extend store credit by accepting credit cards from 2 to 5 percent. This will help you collect payments on time.
The risk of expanding sales:
In order to generate more cash, your small business must try to attract new customers and sell more goods and services to your existing client list. This may not be the case as new customer acquisition can be a strain on your time and money to convert prospects to sales. By analyzing the market, you will be able to sell more to existing customers and reduce the cost of gain new clients.
This will enable you to improve your profit margin and manage cash better. Small businesses must be careful of increasing sales as this may increase only the accounts receivables and not cash payable if these sales are credit-based.
Impact on cash flow from pricing discounts:
You can increase cash flow by providing discounts to customers that make early payments. This can reduce your profit margins when you incentivizing your customers to ensure that payments are made earlier than the typical billing cycles. This can also help your company to get early payments from suppliers.
Acquiring suitable loans:
There are certain days where short-term cash flow problems may cause your small business to take out loans. Most loan types are revolving credit lines or equity loans. This type of loan is not suitable during a financial meltdown as banks tend to cancel credit lines. Other methods of procuring loans include long-term amortization loans (including a principal and interest until the loan is closed). As a small business owner, you can keep the situation under control by reviewing your cash flow results on a monthly basis.
This will help in understanding whether your management is creating the right type of cash flow for your business requirements. In this manner, you will learn how to better your cash flow projections and make business decisions that will improve your business and cover your existing expenses.