Building a business from scratch is not child’s play, and building one that lasts for the long haul is even more difficult. Among the multitude of factors that influence a business such as the market you foray into, your timing, the socio-political scenario of the country and a solid business plan – most are out of our control. What we can control is the internal operations of the business.
A healthy business is one that is a great balance of revenue, profits and expenditures. The slightest imbalance in these metrics has the potential to harm your business. Simply put, your business must maintain a steady cash flow. The formula to achieve this is quite simple – speed up the collection of your receivables and slow down your payables without risking your relationship with your suppliers. In case, you are planning to start a business of your own, here are six smart tips to assist you with boosting your cash flow:
1. Undertake Business Cash Flow Prediction
The first step to solving a problem is understanding it. Getting a good grip on your current cash flow is the best way to identify the peaks and troughs in your cash balance. Keeping a track of rising expenses too is important as a lot of companies land in trouble because they overlooked certain unfavourable movements in the cash flow, which could have been predicted if thought through.
You can do this exercise either on a monthly basis or a yearly basis. Here’s an example to understand the cash flow better: Let’s say, you sell the most in the month of December. But as per your forecast, additional hiring is taking a toll on your marketing budget. Based on this insight, you can either outsource your staff or go for a bank loan to finance the hiring or increase the marketing budget.
2. Make Your Invoicing Process More Efficient
We couldn’t stress enough on the importance of this step. Most businesses lose a lot of time following up on receivables. Raise your invoices earlier. For example, if you are invoicing your clients after 30 days of sale, try doing it within 15 or 20 days. You may also consider reducing your time window for payments. An incentive and penalty programme could work wonders for your business cash flow. You could give a 5-10% discount to clients who pay early or on time. Similarly, a penalty could be introduced for delayed payments.
3. Stretch Your Payable Time
This could be tricky, but done right, it could ease the pressure on the cash flow of your business. Try stretching your payment cycle, say to 40-45 days to 90 days or so. For example, if your vendors were getting paid in 40-45 days, try stretching it out to 90 days. A lot of your vendors may not agree to it, but getting even a few onboard will give you ample time to improve your business cash flow.
4. Keep An Eye On Your Inventory
Keep tabs on your inventory to observe sales trends. Too much stock means you have too much cash tied up in products that don’t sell that frequently or are not in demand. On the other hand, too little stock in your warehouse could lead to a cash deficit. Hence, regularly review your inventory and make sure you always have the right amount of stock to meet your customers’ demands which will ensure a steady cash flow.
5. Go With The Lease Option
Leasing is costly as compared to buying. But if you wish to maintain cash stream for day-to-day operations, leasing is the best option that you have in your hand. When you lease an asset, you pay in small instalments, which is good for your business’ cash flow.
For example, you are planning to launch a new product and need to finance its R&D. Rather than investing in purchasing new machinery, you can take the same on a lease. Though you may end up paying a higher amount for that machine due to lease, you will always have cash in hand to spend on your R&D.
6. Rely On Web Platforms To Make & Receive Payments
Web platforms enable businesses to facilitate payments and receivables faster, thereby, improving cash flow. They are especially helpful when you have a foreign stakeholder to deal with. However, most of these web platforms are known to charge a high fee. Besides, their hidden charges discourage many business owners from using them.
If you are looking for a cost-efficient alternative that lets you send and receive cross-border payments quickly without any hidden fee, InstaReM is here to end your search once and for all. It has a network of 8,000+ banks in 55+ countries, thereby allowing businesses to make and receive multi-currency payments. With a quick transfer facility and easy reconciliations, InstaReM makes dealing with a foreign client/vendor a breeze, thereby ensuring a healthy cash flow.