Nowadays, many businesses have financial issues. Competing on the crowded market is difficult enough without the constant expenses businesses must cover, in order to remain afloat. One of the major financial issues almost every company has is cash flow issues. Cash flow represents the money you have after gaining profits from your accounts receivable and paying expenses for your accounts payable. Basically, it is the money flowing into and out of your business.
If there's more money going out of your business than its coming in, your cash flow is negative and vice versa. Understanding cash flow is simple enough, but ensuring a positive cash flow is a whole different story. The main reason cash is so important is that it's the most liquid and the most important business asset your company has. Cash allows you to make instant payments whether to make investments or cover expenses. Without cash, your company may go bankrupt even if it generates good revenue. Here are a few ways to generate more cash flow and improve your business finances.
Conduct a cash flow forecast
In order to generate more cash flow for your business, you must first understand your current cash flow situation. Cash flow forecast allows you to understand your current situation, as well as make predictions for the near future. Understanding your current cash flow helps you identify ways in which you can improve cash flow, as well as improve your business finances.
The way to do this is to prepare all income statements for your business operations. That includes incomes generated by sales, as well as any other income you might gain, such as tax returns or interests on savings. What's more, you need to prepare a list of expenses your company must cover. That includes salaries, taxes, bills and so on. Once you combine information from income and expenses statements, you can accurately predict your cash flow status on a monthly or yearly basis.
Try to get paid on time
Generating good revenue and profits doesn't mean you're generating enough cash flow. Ensuring you get paid in time for your products or services helps you guarantee that you'll gain incomes before you have to cover expenses. A good example is invoice payments. Allowing your customers to pay via invoices is a good way to offer convenience. But, you must also think about your cash flow. Your invoices may take from 30 to 120 days before they're due or before you can actually collect payments from customers.
However, during that time period you'll still have expenses to pay. Without cash on-hand you're unable to cover such expenses before your invoices are due, which means you either have to seek funding elsewhere or declare bankruptcy. Therefore, try alternative payment methods or try to ensure you get paid early on. You should have your invoice paid with finance to ensure you can cash in on your invoice before they're due so that you can meet your obligations and continue operational processes.
Reduce overhead costs
Many businesses have too many expenses focused on their overhead costs. Overhead costs are all expenses that have nothing to do with direct labor and materials procured for the manufacturing of your products or services. In other words, overhead costs are expenses that won't yield any return on investment. These expenses include taxes, accounting fees, maintenance, bills, advertisement, rents, travel expenditures, utilities, legal fees, telephone bills and so on.
All of these expenses are important for the normal operation of your business, but that doesn't mean you have to waste extra cash on them. If you want to save up some money, you should strive towards reducing your overhead costs. For example revise your insurances, telephone provider and other services to ensure you're getting a good deal. Also, try to minimize other costs as much as possible, in order to improve your business's cash flow.
Seek additional funding
In some cases, you may need cash fast and you won't be able to wait for various strategies to start showing results of cash flow improvements. If such a thing occurs, you will have to seek additional funding to cover immediate expenses. Many business owners decide to go to a bank for a loan first. Bank loans can be a good way to gain additional funding you can use to cover most important expenses and ensure a positive cash flow for your business.
However, banks tend to look closely at the person applying for a loan. Therefore, if your credit score is bad, you may be denied for a loan or charged with high interest rates. To avoid that, you should consider applying for bad credit loans. This alternative type of lending may suit you more because these types of loans are more suited for people with a bad credit history.
Many businesses fail because their owners are unable to secure a positive cash flow. No matter how good your revenue or profits are, you won't be able to cover important expenses without cash. That's why it's important to increase cash flow to your business and thus ensure that your company favors a good financial situation.