Unlock Liquidity: Key Tactics For Managing Cash Flow

Many business experts claim that sales are a business's lifeblood. However, cash flow is a company's lifeblood. This statement is similar, but it is different.

Sales represent your business's revenue, while cash flow is the actual movement of money in and out of your business. It's important to note that sales sometimes equate to cash in hand.

The survival of a business rests on the practicality of cash flow management. With the proper knowledge and tools, any business owner can confidently grasp.

Critical Strategies For Enhancing Cash Flow

If you own a product-based business, developing metrics on how much and how often you go through inventory can make all the difference in the world. Understanding what amount of product left on the shelf should trigger a reorder and how often you need to reorder will help you properly plan your cash flow.

Using enterprise resource planning software for small businesses can help you keep track of inventory and order levels. Ensure that whichever software you use ties into your point-of-sale system. Overbuying can waste money over time, and underbuying can frustrate customers who want to receive their products in a timely way.

Whether you operate a product—or service-based business, you should negotiate extended accounts payable times to ensure that you have the cash available to pay your business's core bills.

An efficient payment system is the most crucial piece of unlocking cash flow. It would be best to make it easy for customers to pay you. One of the easiest ways to understand their preferred payment method is to take a survey.

Leveraging Technology For Cash Flow Management

There is more cash flow software now than ever before. Tools like Square or QuickBooks can help you collect payments and organize your finances.

A fatal flaw in many small businesses is slow invoicing, and even worse, they lack a follow-up when payment is due. Essentially, many small businesses fail to properly collect overdue payments from consumers.

According to Myos, accounts payable automation pays for itself in 6 to 18 months. Also, the software saves users an average of one hour daily.

This report shows technology's critical role in an overall cash flow management plan. This problem is not going away since, according to accounting software giant Intuit Intuit , 61% of small businesses worldwide struggle with cash flow.

Conceivably, the biggest challenge for small businesses struggling with cash flow is managing the risks inherent in business transactions.

Mitigating Risks To Maintain Healthy Cash Flow

If your firm bills in arrears, an excellent habit to get into would be requiring credit checks for your customers. This would allow you to examine their payment history and determine whether they have been historically good at paying their bills on time.

Inputing cost controls in your business is a second way to mitigate risk and maintain a healthy cash flow. As mentioned, establishing ideal inventory levels and an efficient staffing schedule will allow you to control costs. Creating a plan to reduce as many variable costs as possible is also an excellent habit to develop. Turning those variable costs into fixed expenses as much as possible will go a long way to predicting cash flow by the month or quarter.

The founder and CEO of Dell Technologies Dell Technologies is famed for saying, "We were always focused on our profit and loss statement. But cash flow was not a regularly discussed topic. It was as if we were driving along, watching only the speedometer, when in fact we were running out of gas".

Don't run out of gas.