According to a study, as many as 82 percent of the businesses that shutdown in the US, cite cash flow problems as the biggest reason for their failure. It is then evident that no matter how profitable a business model is, every company has to make sure that they have a steady and profitable cash flow to ensure that those plans work for them. This dependence on positive cash flow is notably stronger in small businesses. For such small-sized companies, the following strategies are considered useful.
This concept of debtor finance is an umbrella term for different financial tools such as invoice finance, cash flow finance, selective factoring, invoice discounting etc. In simple terms, debtor financing is about securing cash flow in the business by using accounts receivables as collaterals. This method is especially useful for small companies where regular cash flow is critical to the survival of the unit.
Discounts for prompt payers
Even a small percentage of cash-back makes a lot of difference in the business. When you offer such a discount programme for your clients, they will be encouraged to pay as soon as they can to save money. This trick will also be useful for you to identify slow-paying clients. If your seller has any such incentive programme, you should consider taking up the offer, but only after making sure that you will have sufficient funds left for the rest of that period.
Managing idle cash
Cash lying idle is an under-utilised asset. If you have any such reserves, it is best to consult a professional treasury management expert on getting the best out of this fund. There are different ways to manage this reserve. For example, you can consider putting them in a high-paying bank account or bonds. In any case, you want this reserve to keep earning interest for you. Keep in mind that any solution should suit your liquidity needs, so do not lock it away for a long time.
Managing old equipment
You can eliminate costly repairs on equipment by setting up a regular maintenance programme for them. Even though repairs are more beneficial to cash flow management than buying new ones, there are times when the company has to decide whether selling the equipment is a better proposal.
Maintenance of non-functioning assets is not only a burden on the cash flow but also a lock on the capital which could have utilised for other productive transactions. Additionally, these things take up a lot of floor/office space, thereby becoming a hindrance to everyone.
Anticipate low reserves
Sudden expenses are standard in every business model, but they hit small businesses harder. While no one can predict them accurately, it would be wise to accept that challenging days are a reality and it is essential to be prepared for them as much as one can. With some discipline, try to set aside some amount every month in an emergency fund. You could also arrange for a line of credit for such times.
Aside from ensuring constant cash flow into your company, insurance is another important factor that is often overlooked. You can compare professional indemnity insurance policies today with iSelect.