Cash Flow Management Tips to Keep Your Company Healthy and Productive
Entrepreneurs who want to keep their company successful need to monitor and manage their cash flow religiously. This is the case whether your company is big or small. A healthy cash flow is a more reliable gauge for business success than other factors such as rapid growth or phases of profitability. And cash flow problems are a major factor in the failure of many businesses. Monitoring cash flow gives you a bird’s eye view of your business’s overall functions, so you can determine whether any changes need to be made.
What is cash flow?
Cash flow has to do with the real, quantifiable cash that is flowing into a business. A company may be profitable on paper, but there’s a difference between theoretical profits and actual cash on hand. For instance, a business may show sizable profits thanks to investments or contracts, but until that money actually shows up and is safe in your account, it is not cash flow. So a company might show healthy profits but still be in trouble due to insufficient cash on hand to pay bills or compensate employees on time.
A positive cash flow means money is coming in. A negative cash flow means money is going out. Obviously, if the outflow is greater than the inflow during a given time, this could spell trouble. Here are some ways you can prevent or deal with cash flow issues in your business.
Forecast your cash flow.
Good management means keeping an eye on cash flow so you can nip any issues in the bud before they blossom into serious problems. Creating a cash flow forecast is one way you can stay ahead of the game in this regard. This can be as simple as a list of anticipated future costs and income. But remember, there will always be unexpected expenses, in any business. Your accountant or your finance team can help you put together a comprehensive cash flow estimate.
Practice good inventory management for cash flow management!
Another way to anticipate and prevent cash flow problems is to stay on top of inventory, so you are always clear on what you have in stock and when orders need to go out. Good inventory management means striking a balance between having too little and too many products in stock. You don’t want to pile up inventory stock to the point that your capital is overinvested in this one area, nor do you want to risk being out of stock and losing sales or delaying deliveries. You should keep track of your inventory turnover, especially, because this can be an indication of healthy cash flow.
With this in mind, you need to take great pains in optimizing your inventory management efforts. Software that automates inventory management, centralizes supplier contracts and pricing, and integrates with multiple e-commerce platforms will do wonders for your profit margins. You’ll always have visibility over the availability of your stocks to quickly fulfill customer orders, as well as have full control over getting the best possible deals from your suppliers.
Keep up with payroll.
Even if you are having a slow-down in cash flow, staying current with payroll is crucial. If you fall behind in this area, you could end up stuck with penalties and interest. And if you don’t keep up with payroll taxes, you could end up in serious trouble, to the extent of being hit with huge penalties or even facing jail time. Upgrading to a good payroll system can help you avoid difficulties here. Look for one that offers automatic scheduling and filing, as well as a mobile app version that makes keeping up with payroll a lot easier.
Cut costs when possible.
This seems obvious, but the fact is, many business owners are over-paying for products or services — some of which they rarely even use. Find out how you can reduce expenses on things like storage and logistics. See if you can get better deals on purchases or discounts on bulk orders. You may also be able to get rid of subscriptions or memberships you don’t use. Modernizing your technology can also be cost-effective. For instance, you may not need your landline and can probably go paperless when it comes to bills and invoices.
Another way to improve your cash flow management is by incorporating your business. In Canada, corporations have a lower tax rate than individuals, so you can substantially reduce how much you pay in taxes each year. Along with tax advantages, setting your business up as a corporation will limit your liability just in case legal action is ever taken against you.
Not every factor affecting your cash flow can be altered, but if you practice good business and financial habits, you can significantly reduce the risk of decreased cash flow generating larger problems. Retailers interested in improving cash flow management or taking business success to the next level can benefit from the support and guidance of XL Consulting Group. Call 905-639-3555 or contact us here to schedule a free 1/2 hour consultation today!
If your company is a startup, then our business startup guide “Fabulous Fempreneurship” might be just what you need. It includes a chapter on cash flow management! It’s a foundational book for entrepreneurs of all genders.
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