Being an entrepreneur of a small business, it is important for you to understand that cash is the essential lifeblood of your organization. You need to manage this valuable resource effectively as it is the key to your establishment’s success in the marketplace. It may come as a surprise for you to know that even the most profitable companies are vulnerable to bankruptcy if the they do not have enough money to carry out their operations. If you have a tendency of using up too much of your working capital, your business could end experiencing a cash crunch.
Leslie Hocker – Improve your cash flow today…
Business experts say you need to keep in mind the following suggestions when it comes to improving your organization’s cash flow position:
- Prepare a proper forecast
As entrepreneur, you need to know organization’s current cash flow position to determine whether you will have enough money in your hands in the near future. Many businesses in the small sector are not always in a position to meet to the costs they have to incur as a result of their growth in the marketplace. When these organizations generate more sales, they may need to employ more people and hold large inventories. This means cash is flowing out of the business. However,such establishments need to determine how long will it take for them to receive payments from their clients. Leslie Hocker, an international marketing director from Huston, Texas,says in such a situation it is important for you to carry out a 12-month forecast. It is essential for you to write down expenses you need to incur and the money you receive from your customers. It may help you to find out if there is a surge in costs while you receive payments only occasionally.
- Evaluate your receipt and payment terms
If you have experiencing cash flow issue, you need to thoroughly check the terms you are offering your customers and payment terms your suppliers allow you. It is important for you to evaluate whether such terms of favorable for your business. Will your clients pay their dues promptly if you offer them attractive discounts or do you need to harsh enough to impose penalties on late offenders? Again, you may also be missing out on an opportunity to avail a discount by not paying your suppliers a little earlier.
- Segregate your suppliers, debtors and inventory
Rather than tackling the cash flow problem as a whole, you may be better off segregating your clients, suppliers and the inventory you need for your business into groups. In the case of inventory, you need to determine whether you are tying up too much money on stocks that sell sporadically rather than those that yield a quick turnover. Again, in the case of your suppliers, you need separate them into regulars and one-off buys. Similarly, you can differentiate your clients into key customers and one-time buyers.
For improving the financial health of your business, your first priority is to improve your organization’s cash flow position. Leslie Hocker says it is possible for you to accomplish this objective by remembering the above tips. Moreover, you need to set collection and revenue targets that your workforce has to meet to avail attractive incentives.