Cash flow management is an essential business component. When done correctly, it gives you insights into your business’s financial performance. Learning about your business’s financial performance tells you if you’re in loss or profit, whether the company is generating funds worth the time and effort, and much more.
When managing cash flow, you will come across two terms: cash inflows and outflows. Cash inflows refer to the profits and return on investment from your business. On the contrary, cash outflows refer to bills, rents, and paying for other liabilities.
Why should you manage cash flow when your company looks strong? Firms can have steady profits but not the cash they can move forward. To help you figure out cash flow management, we’ve discussed the following:
- What is cash flow management?
- Big and small business cash flow management strategies.
- Importance of cash flow management.
- Ways to improve cash flow.
Cash Flow Management–Overview
Cash flow management means managing the money that comes into your business in the form of profit and leaves your business in the state of bills and other liabilities. It also refers to understanding and improving cash receipts (subtracting the expanses), so your business can have enough money for steady growth.
Importance of Cash Flow Management
Cash flow management surrounds how business operations occur and financial activities and investments. Here are some significant reasons that encourage firms to pay more attention to cash flow management.
1. Helps Maintain Good Relationships with Vendors
Cash flow management helps you make payments to your vendors on time. Delayed payments can cause cracks in your and the vendors’ relationship. And you wouldn’t want that if you plan on purchasing stuff from them. Moreover, delayed payments can ruin your brand’s reputation in the market and push people away from going into business with you.
2. Ensures Sustainable Growth
SMEs (Small and Medium-sized Enterprises) require funds, personnel, and premises for sustainable growth. All this can be achieved by managing cash flow that will lead to optimized receipt of money.
3. Shows a Clearer Picture of Your Profit and Loss
While calculating profit and loss will tell you about your business’s financial performance, cash flow management paints a clearer picture. How so? It gives you a deeper look at your spending and if you’re going to find a healthy return on investment.
4. Enhances Financial Planning
Cash flow management will tell you when and how much money will leave or enter your business. It will tell you the money you need to arrange or can withdraw. This will allow you to find a better investment opportunity for the money you will be withdrawing or a way to organize the cash for upcoming needs.
Cash Flow Management Strategies
To manage cash flow in your business, you can use cash flow templates, which are prestructured documents helping companies to monitor cash inflows and outflows.
Here are some more tips on how to manage cash flow in your company regardless of its size.
1. Run a Cash Flow Analysis
Remember the document we discussed, which you can create using cash flow templates? It’s also referred to as a cash flow statement. To run an analysis, you need to survey the cash flow statement. Then, construct a series of “What if” questions. For instance, what if you get a massive client? Or what if any unexpected expenses arise?
This process will enable you to highlight the areas with the highest risk in operations. You can use accounting applications to make cash flow analysis more convenient.
2. Layout a Strategy for Paying Bills
Paying all the bills and rent simultaneously can drain you of cash. And this may lead to delayed payments to your vendors. We’ve discussed why you wouldn’t want to upset your vendors.
A tip to avoid being drained out of cash is to extend bill payments as much as possible. Now that doesn’t mean you make delayed payments for bills. Sort your bills out and rank them according to importance. The most important ones and those who cannot afford a delay should be paid before the others. And the bills that are less important and for you can get an extended deadline should be paid after the important ones.
Moreover, if paying a bill early gets you a discount, place that bill in the important ones and try to settle it as soon as possible.
How to Enhance Cash Flow?
A positive cash flow enables you to keep up with your current financial obligations (refers to substantial routine expenses) and future financial needs. Suppose your business sees a negative cash flow. In that case, you can implement the tips below to improve your situation.
1. Motivate Your Customers to Complete the Payment Early
A way to encourage your customers to make early payments is by delivering their product as soon as they ask for the delivery, and don’t forget to send the invoice straight away.
Make it convenient for your customers to pay. Different people are comfortable paying through various methods. That’s why you should offer multiple payment methods such as credit card, bank transfer, direct deposit, or other popular modes of payment.
You can also offer discounts or free samples of your products/services on early payments if you can afford to.
Customer disputes are also one of the reasons for delayed payments. Therefore, you need to set up processes that resolve those issues as soon as possible and make you eligible to accept payments for your orders.
Lastly, don’t forget to send regular follow-ups for the payments yet to hit your account.
2. Organize Your Suppliers and Inventory
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You will have both types of products in your inventory as a seller: the products that sell as soon as they arrive and those stuck in your inventory. You wouldn’t want to pay for only storing the products. That’s why you need to replace the hard-to-sell items with stock that generates sales sooner.
Another way to avoid paying for the storage of slow-moving items is to find suppliers that agree to provide you with stock only when you need it.
If your supplier allows you to have an extended period to complete the payment after receiving the stock, make full use of that agreement.
Don’t forget to monitor your inventory consistently to know what items need to be ordered, replaced, or removed.
3. Consider Raising Prices
This tip may put off many business owners because they think raising prices equals fewer customers. But that isn’t the truth. Everyone knows as time passes, goods get expensive. And even your supplier won’t provide you with the stock for the same prices in the next ten years. Therefore, raising your products/services prices is alright according to the current situation.
The key is not to increase them immediately. Make it a slow process by experimenting with what figures drive your customers away and what doesn’t have a negative impact.
4. Research Your Customers
Researching your customers can give a clearer idea of their needs. And when you meet their needs, your sales are more likely to see an upward spike resulting in enhanced cash flow.
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A great way to research your customers is by looking at their feedback. Those reviews will tell you about the issues most of your customers face. Then, look for a way to solve them as soon as possible. This won’t only enhance your cash flow but also create a positive reputation for your brand.
5. Analyze Your Products
Sometimes, your product has flaws that drive potential buyers away, resulting in a negative cash flow. To get a better idea of your product’s gaps, reach out to a group of people that would count as your target audience and give them your products/services to try. Now consider their feedback to make improvements.
Trying your product/services yourself can also produce significant results. Research your target audience and identify what attracts them toward products. Now test your product/services and see if that includes features to captivate your target audience’s attention.
How Does Strikingly Help Businesses in Improving Cash Flow?
Strikingly values its users and the efforts they put into building their companies. That’s why we support them by providing valuable web services.
Strikingly is a ridiculously easy-to-use website builder that offers editable templates and an intuitive website editor. It provides robust features for creating beautiful, responsive websites without compromising ease of use.
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Moreover, we put forward numerous digital marketing tools, such as newsletter service, custom domains, social media integration, and more, to help you spread the word about your business. The more people know about your business, the more chances of generating sales and improving cash flow.
With Strikingly, you can build an e-commerce store with features to create an incredible customer experience. CX is another way of creating more sales conversions and increasing cash flow. With Strikignly’s Simple Store, you can accept payments through numerous modes and in 135 different currencies. This will allow you to do business with international customers.
As the final words of this article, we would like to emphasize the famous saying: “cash is king.” Cash flow provides you with resources for your business’s sustainable growth making it the king of the company.