How many profitable companies can you think of that had suffered considerable damage because of cash flow problems?
Many businesses are struggling to survive or went bankrupt due to poor financial management – I am sure you can name a few!!
Sometimes, business owners, entrepreneurs and managers neglect the things that really matter – cashflow.
Whenever many people see signs of business success, they often drop the guards down, believing that finance and income streams are secure.
But the harsh reality is that at any given point in time, your business operations can suddenly stop functioning and steer towards a negative outcome.
If you’re thinking of ways to improve and steadily increase your cash flow, take note, and start implementing the strategies below.
1.Perform Accurate Financial Forecasts and Scenario planning
There are more business owners than you’d think who are vague about what it takes to grow their business. When entrepreneurs usually think of terms such as scaling or business growth, sometimes many fail to think about all the costs and expenses that are likely to arise and tends to focus mostly on the likely increase in revenue profits.
One way to improve your cash flow is to improve the accuracy of your financial forecasts. But a big mistake is being unrealistic – you want to be an optimistic pessimist.
By this, I mean you should create multiple realistic and possible scenarios that could occur. Usually, entrepreneurs tend to be overly optimistic when calculating all the potential outcomes. However, it would be best if you were ruthless about the possible results – good and bad.
Analyse and use past data instead of using a brand-new model. Recorded data and information from the past is far more accurate to base your financial forecasting and assumptions off and tends to more realistic than just guessing.
However, it is also important to take into consideration the latest developments in your industry and whats going on in the economy – up to date information.
Look at the different expenses and see where you have the most control. It’s way easier to measure and calculate the volume of your costs than it is to calculate your revenue growth, so start there.
You forecast also need to be updated using the actual results. Please don’t leave it to catch dust once after you create it, but reassess your methods and practices to see how close you are to what you initially forecasted. Then, adjust those areas in your business frameworks with any new data.
Accurate financial forecasts ultimately lead to better business planning, financial thinking, and improved decision making that’s more strategic and rewarding for your cash flow.
Are you keeping an eye on how you can cut down on some of your operating expenses?
Track your financial records and statements and look at where your money is going ( manage the cash outflows as well as the cash inflows). I can bet that there’s at least one service or subscription you’re paying for that isn’t really adding much value to your business.
To stay safe, double-check with an accountant or financial advisor with what you might decide to stop paying for. This prevents any significant repercussions that could harm your business revenue or profits.
3. Practise Early Payments
Not only should you pay early to avoid penalty costs and get overcharged with future suppliers, but you should also promote the concept of getting your customers to not pay you later than when they really should be.
One good way to do this is by using incentives such as discounts, or even by upselling them on special offers if they pay early.
If you haven’t already, take the time to outline or update on your financial plan for your business to reduce cash output.
But, always be on time and don’t miss deadlines. You should also be sending invoices earlier so you can get paid faster. If you’re not already, consider using invoice software so that your customer payments aren’t overdue.
4.Experiment With Different Pricing Strategies
Don’t be afraid to test out different pricing strategies and structures to see which works best.
One way to improve your cash flow is to increase your prices. Most business owners are afraid to do so, but it would only be bad if you miscommunicated or if it’s an unreasonable, drastic change. E.g. increasing your product from £50 to £1000.
One example of a good pricing model is monthly subscriptions. Instead of having a one-time charging price for a high-ticket product, you could change it to a subscription model, which is great for recurring income.
Subscriptions are also effective for customer retention. It also makes your product more affordable and easier to pay for those customers who might not have been able to pay for your product in the first place.
Take the chance to find out how far your audience is willing to go. And don’t forget to seek feedback and reviews when you’re changing the pricing structure of your business.
5. Manage The Different Sections That Influence Your Cash Flow
Often, people believe that making more money will resolve their issues, but that’s far from the truth. The other half of the answer lies behind how you manage your money.
Different sections influence your cash flow, including:
- Inventory and Stock Control (Product base business)
- Revenue generation strategies
- Expenses Management Policy
- Cost of Goods/ Services Sold
- Accounts receivable/ Debtors
- Accounts payable/ Creditors
Sometimes, you’ll find items in your inventory that are slower than some of the other items you already have.
When you’re tracking your metrics, you might also notice that there are certain features or products that a very small percentage or even no customers at all are paying for. If that’s the case, cut that out your inventory – what’s the point of buying more of something that’s not going to make you profit?
It is vital to monitor your cash flow and to pinpoint where the financial gaps are in your business consistently.
Whenever you notice a problem, the right answer may not always be to dispose of the source completely. Instead, it might just need to be looked at a different perspective so you can take on a new approach that works better.
If you’re looking for a proven blueprint to curtail expenses, and maximise your business profits and maintain positive cash flow, grab my free e-book right here.
You can also get in touch if you are looking for proven strategies and techniques to improve your cash flow – Use the link here or email us at firstname.lastname@example.org.
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