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May 04

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Back to the Basics: Cash Flow (Part II)

In Part I of this Back to Basics: Cash Flow series, we discussed cash flow, the different types of cash flow, why it is important, and how it came to be the number one focus for businesses around the world. In Part II of the series, below, we go into detail on several ways you can better your cash flow management.

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There are always lean or slow months in business, and a manager or owner should be prepared for these lean months. We suggest taking a look back at your history of cash flow and come up with estimates that you should keep in reserves in case you have a slow period of 3, 6, or even 12 months. Knowing these numbers will assist you in making better business decisions and being prepared for hard times, should they come by.

If you know you have a slow season coming up, another way to prepare is to arrange a line of credit with your bank. During good months when you are flush with cash, go to your bank and arrange for a line of credit. Having the cash on hand will make it easier for them to provide the line of credit for you to use down the line during leaner months.

Keeping the cash flow streaming into your business can be difficult, too. Issuing invoices promptly and following up on them regularly is key. You may also offer a small discount for early payment. If needed, structure payments from customers with an upfront deposit for new customers or particularly larger orders, or create a payment plan for them.

Additionally, work with your vendors when it comes to paying your own invoices. If the vendor is offering a discount for early payment, always try to take advantage of it. Otherwise, make full use of the payment terms, paying with only a few days remaining to have that cash on hand as long as possible. Build trusting relationships with vendors, and even ask about flexible payment terms – it never hurts to ask. Setting up an automatic payment through your bank can also make life easier for you

The goal here is to have a safe amount of cash on hand at all times to pay for whatever is needed – whether it be a common expense like employee salaries, or a great investment opportunity that would have otherwise passed you by. Good cash flow management gives you the power to make the best decisions to help your business thrive. Cash is king for a reason – and don’t you forget it.

Still curious about improving your cash flow management? Click here to read out post on The Ripple Effect: Improving Cash Flow.

Permanent link to this article: http://c2cresourcesblog.com/back-to-the-basics-cash-flow-part-ii

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