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Every small business needs cash for their operations. Therefore, the lack of it can be problematic. According to a recent survey, around 57% of UK small businesses face cash flow problems, leading to late payments and fees, strained supplier relationships, credit issues, dampened employee morale, and reduced business growth.
While many factors can contribute to these cash flow problems, there are a few things you can do to avoid becoming the next statistic. Below are six ways to maintain your small business cash flow.
Cash flow forecasting
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If you’ve ever thought about looking into the future of your business cash, that’s where a cash flow forecast comes in. It’s all about thinking through everything that affects your business finances. You want to know what’s coming in and what’s going out, all in the next month or quarter. Doing this helps you stay ahead of the game.
For instance, forecasting your cash flow enables you to anticipate the slow sales season and figure out how to manage your business to reduce the impact on your overall business. The goal here is to be proactive, forecast ahead of time, and keep your cash flow steady.
Ensure proper inventory management
Having too many items lying around can mess with your cash flow. According to EazyStock, getting your hands on the right goods in the UK can be challenging for small businesses. So, it is practical to keep tabs on what’s sitting on your shelves and not let it pile up.
Get savvy with an inventory system to steer clear of drowning in excess stock. Remember to chat with your suppliers and see if you can get better deals when buying in bulk. If some things don’t sell, throw in a special offer or promo to get that stock moving and free up some cash.
Remind your customers to pay on time
The average person takes around two weeks to settle their debt, according to Xero. But as a business, you don’t have that much time to wait. Experts suggest nudging your customers a bit instead of sitting back. You may set up some automatic emails to remind them 10, 7, and 2 days before payday. And if the cash is still playing hard to get, don’t be shy – drop a friendly note or give them a call. It’s all about being a bit savvy with your cash collection. You might also take the time to learn more about what to do when customers don’t pay, so your business can respond appropriately in such situations.
Be smart about your business growth
Although growth is good for your business, a rapid rate could present financial issues for your enterprise. For instance, securing a fresh contract might mean hiring new faces, but when payday hits, and those terms stretch out to 30, 60, or 90 days, things can get tight, making it difficult to pay your staff.
That makes it essential to strike the right balance: embrace the growth, but don’t let it affect your cash reserves. Keep a close eye on your cash flow forecast. A line of credit could be your rainbow in the sunshine if you’re wondering about paying back the loan you took to expand your business.
Treat each new customer like an investment and figure out what they are bringing by way of profit or how long before it’s in your pocket. This way, you can effectively pace yourself out.
Get familiar with the one paying the cash
Getting friendly with the one who pays the cash is a game-changer. Sure, most of your B2B connections are probably in sales or marketing but don’t overlook the one behind the paycheck curtain. Knowing the name and email of the accounts payable personnel is prudent. When you have a good relationship with them, you’re in the know about where your cash is in the works, and if there’s a hitch, you can contact them directly.
Review your pricing strategy
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Your pricing strategy can determine how easily you convert your products into cash. It is common knowledge that customers buy more and pay quickly when prices are reasonable compared to your rivals.
So, regularly review your pricing to make sure you’re charging enough to keep the cash flowing and your business in operation. This step may require finding that sweet spot where you’re making a tidy profit, staying in the competition, and still offering value to your customers.