7 Tips to Better Manage Your Company’s Cash Flow
SADC and CAE business advice
Julien’s landscaping business is booming. The phone doesn’t stop ringing and the customer base has doubled in the last year. Julien needs to hire 4 additional employees to meet demand and honour his contracts.
To help him cover the increase in his payroll, he needs financing. He applies for a loan from his bank. He receives a negative response from the financial institution. Why? The company’s liquidity is insufficient. A large part of the liquidity of Julien’s young company is, in fact, immobilized in the equipment. This is a concrete example of how liquidity affects a company’s ability to grow.
It takes money to make money! It is essential to have working capital that matches your ambitions, and to be ready in the event of unforeseen events or exponential growth, as in Julien’s case. In order to establish a realistic growth plan, it is always best to anticipate and plan when it comes to cash flow.
Here are 7 tips to help you manage and optimize your business’s cash flow:
1. Assess Cash Flow
Knowing how much money comes in and out of your business is essential to understanding and managing your cash flow. Analyze your cash flow regularly to make sure you always know where your money is going and how much you have.
2. Develop a cash flow budget
Having a budget for your cash flow will help you understand your financial situation and plan for future spending. A cash flow budget will help you track your business expenses and prevent you from running out of money.
3. Negotiate payment terms
Negotiating payment terms with your suppliers can help you manage your cash flow and ensure you don’t run out of money. It’s also important to negotiate payment terms with clients, so you receive payments on time and have enough money to cover your expenses. Additionally, you can consider options like factoring, invoice financing, and lines of credit to help increase your cash flow.
4. Reduce Costs
Reducing costs is a great way to increase your cash flow. Look for ways to reduce expenses, such as by renegotiating contracts with suppliers or finding ways to reduce overhead costs.
5. Increase Income
Increasing your income is another great way to increase your cash flow. Consider ways to increase sales, such as launching new products or services, or offering discounts or promotions.
6. Use technology
Using technology can help you streamline processes and save money. Investing in software and automation can help you save time and money, and manage your cash flow more effectively.
7. Monitor your cash flow
Monitor your cash flow regularly to ensure you always have enough money available to cover your expenses. Review your cash flow statements and balance sheets regularly to ensure you are aware of any changes in your financial situation.
To transform this advice into concrete actions, and adapt them to the reality of your business, the advisors of your local SADC and your accountant are your allies.