Cash flow – the lifeblood of any business. The more cash you have, and the closer your assets are to cash, the more liquid your business is.
Many bases the success of a business on its reported profits. While profits play an important role in the continuity of a business, they do not represent the financial standing of a company. A company can report profitability on paper but not have enough actual cash to restock its inventory or pay its immediate operating expenses such as lease and utilities. This is because a cash flow statement is an actual report of what a business has available, whereas profit doesn’t reflect how much cash is actually in the business to help it grow.
Hence, while it’s important to focus on generating a healthy profit, the fact is that it’s your cash flow that keeps your business running. However, many local businesses are facing challenges when it comes to diagnosing leading symptoms of an approaching cash crunch and employing effective counter-measures.
As the saying goes, prevention is better than cure. Following are several tips for business owners to get on top of their cash flow.
1. Re-evaluate Your Expenses
Expenses often creep up gradually over time. That’s why business owners need to take time to go through expenses and find any non-essential expenses that can be reduced or cut off completely. Streamline your business processes and systems by making use of technology. For example, many businesses are closing down their bricks and mortar store in favour of online retail, are you able to shift your entire business presence online? This will help you save on operating expenses such as rent and utilities.
2. Review Your Pricing
Regardless of your product or service, pricing is key to your business. Are you selling your product or service at its optimal price? Increasing prices is a daunting task for many business owners for fear of drops in sales. Although that is always a possibility, it’s best not to come to any preconceived conclusions without first experimenting and finding out what the market can tolerate. Your task is to find that sweet spot where your price point helps you boost your cash flow without resulting in lost sales.
3. Take Out a Small Business Loan
If you’re in search of a quick injection of capital into your business, you could consider taking out a short-term business loan This will give you the funds you need to raise and can be paid off relatively quickly. However, if you have concerns about taking on more debt, here are several reasons why a small business loan can contribute to your business cash flow:
- Purchase new equipment and restock inventory
- Fund business expansion
- Cover unexpected expenses
4. Negotiate With Your Vendors and Suppliers
You could boost your cash flow by negotiating better payment terms with your vendors and suppliers. If you have a long-term relationship with your vendors and suppliers, consider asking for discounts in addition to bulk inventory rates. Or in some cases, you may find it’s time to look around for other vendors and suppliers that offer you more competitive pricing. It’s always worth taking the time to explore other options for your business.
5. Broaden Sales Market
Adding new sources of income is another effective and proactive method to increase your business’ positive cash flow. You can add new services or products to your existing offerings. Maybe your café can start renting out unused space for other businesses to set up a kiosk to sell their items. Get creative with it. If it’s impossible for you to add on new products, perhaps your marketing could be expanded. Think of new ways to get the word out about your business. Consider if there are any other groups of people that could benefit from what your business offers.
6. Speed Up Invoicing
Time does really equal money when your business is strapped for cash. Stay on top of your outstanding invoices and minimize the time it takes to get paid. Make sure your invoices’ terms are outlined clearly, easy to read, and with a visible due date. Do remember to include any late payment fees in there to encourage your customers to pay on time. Another way to encourage prompt payment is to offer a variety of payment options that will make it as easy as possible for a customer to pay you.
7. Build Cash Flow Forecast
Many businesses go through cyclical highs and lows. An accurate cash flow forecast can help you highlight the cycles in your business. This information can be used to predict future cash positions, avoid a crippling cash crunch, and generate revenues on any cash surpluses they may have in the most efficient manner possible.
Is your business facing cash flow problems? Talk to our advisor to find out how you can apply to our business loan to improve your business’ cash flow.
Avex Credit is a licensed money lender in Malaysia under the purview of the Ministry of Housing and Local Government and governed through Money Lenders Act 1951 and Money Lenders Act (Amended) 2003. We provide a variety of personal, mortgage and business loans that are tailored to meet your specific needs.