How to Manage Cash Flow for SME’s and Startups – Tips & Solutions

 

How to Manage Cash Flow for SME’s and Startups – Tips & Solutions


How to Manage Cash Flow for SME’s and Startups – Tips & Solutions: Cash flow plays an important role in the financial management of a growing business. Managing cash flow effectively requires a lot of planning on the part of the business owner. What seems like an obvious way to improve cash flow can backfire. Cash is king! The best indicator of a company's potential for long-term success is its ability to generate and maintain cash.

Cash flow is the lifeblood of small businesses, the way they generate revenue, purchase materials, and invest in infrastructure. Business owners who cannot effectively manage their business's cash flow are almost certain to fail. Those who can do this can improve almost every aspect of their business. Whether your business is growing or struggling, effective cash flow management is absolutely essential, and for many it's the key to business survival.

 

Here are Tips & Solutions on How to manage Cash Flow for SME’s and Startups

How to Manage Cash Flow for SME’s and Startups – Tips & Solutions


1. Reduce and Minimize Cash Outflows

The best way to control cash outflow is to control spending. Once profits begin to emerge, there is a tendency to ignore cost-cutting opportunities. If cash flow is not controlled, it can quietly destroy your business. A combination of cutting or avoiding spending altogether and deferring payments as much as possible will reduce your need for cash.

Cost reduction strategies include:

• Review all business expenses, no matter how small.

• Eliminate all unnecessary expenditures that increase cash outflow.

• Always look for alternatives before thinking of spending money.

 

2. Speed up the Recovery of Receivables

If you are paid when sales increase, you won't have any cash flow problems. Unfortunately, that won't happen, but you can improve your cash flow by managing your accounts receivable. The basic idea is to speed up the conversion of materials and supplies into products, inventory into accounts receivable, and accounts receivable into cash.

Here are three specific ways to do this:

• Issue invoices on time and take immediate action if payments are late.

• Offer discounts to customers who pay their bills immediately.

• We require customers to pay in advance when placing an order.

Also, make it as easy as possible for your customers to pay. For example, you can use an online billing solution that allows you to accept credit card payments. Find out how you can achieve this using our innovative invoicing software.

 


3. Eliminate Cash Tied up in Assets and Excess Inventory

Do you have equipment you no longer use or outdated inventory? Consider selling it for some quick cash. Unused, outdated, and unusable equipment takes up space and ties up capital that could be used more productively.

As customer demands change and new materials are introduced, excess inventory can quickly become obsolete and useless. Consider selling inventory that is unlikely to be used within the next 12 months unless the carrying costs are minimal and the proceeds from the sale are negligible.

 

4. Provide Adequate Long-term Financing for the Business - Avoid Surprises

There's nothing more difficult or daunting than finding money when you're desperate. Not having enough capital to finance a business is a major threat to the long-term survival of the business. Therefore, it is important to have enough capital to fund the business for a period of time (whether or not the business becomes profitable). Here are three tips to ensure you have the right funding for your business:

• Create a budget based on your business plan.

• Determine how much loan you need and when you need it.

• Provide emergency funds to deal with unforeseen problems.

It's always best to start improving your cash flow through "organic" means: generating more cash through sales and using less cash to pay expenses. However, your business may reach a point where even after doing everything to maximize business profits, it's still not enough. At this point, it's time to consider external financing as a way to improve your cash flow situation.


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