As a businessperson, one of the key factors that keep a business running is liquid cash sometimes referred to as operating capital. When a business has cash flow, then it means that it will always be in a position to pay suppliers, meet payroll and pay for other expenses that come with running the business.
However, many business owners sometimes go without cash inflow into the business. This is always often regarded as a sign of financial challenges for the business. The main reason why businesses get into this position is due to a lack of better methods to conserve cash flow. Conserving cash flow is where a business works to retain its cash position and maximize every available coin without misusing any single cent.
Conserving cash flow in a business is not something as easy as we would like to think? If you think so, then tell us why many businesspersons fail? This means that cash conservation is something that business owners should learn. Can a business increase cash flow and maximize profits at the same time? Yes, here are the key steps for doing so.
1. PLAN EVERY PAYMENTS:
Many businesses deal with suppliers who supply the business with goods and services. As a businessperson, it’s essential to ensure that cash flow in the business is maintained at a specific level for running the business. If you have suppliers that you have established a good working relationship with, try to negotiate a lengthy repayment period with them so that the cash can be put back into the business.
Doing so acts as a double-edged sword in that you make profits while at the same time keeping your business debt free. Who wouldn’t you want to do that in today’s uncertain economy? As a businessperson, take this tip and put it into use.
2. COLLECT AND ATTENTIVELY MONITOR CASH LEVELS:
If you invoice customers and they have a generous time frame in which to pay you, that can make planning tricky. However, there are ways to encourage your customers to pay their bills more quickly:
× Issue invoices promptly and follow up on them regularly.
× Offer a discount for early payment. Give a small discount for payment within 10 days.
× Structure the payment with an upfront deposit or, if it’s a long project, schedule payment intervals throughout the project lifetime. This will ensure that you are getting some cash in the door along the way.
3. ENCOURAGE REPEAT BUSINESS:
If you’re in a volume-driven business like retail, landing repeat shoppers is your holy grail for cash flow, profit and growth. In most cases, you won’t start to profit on a customer until the third, fourth or even fifth transaction. For this reason, you need to devote your efforts toward getting customers coming back — and more often.
Consider loyalty programs, VIP offers and other frequent-customer programs, which can be ideal vehicles for systematizing repeat business. Also keep in mind that the word “free” is a popular incentive among shoppers, and the costs of funding a freebie may easily be covered as long as you’re dealing with excess inventory or low-cost, but valuable add-ons.
4. BARTER TRADE GOODS AND SERVICES:
Instead of paying for everything that is supplied to the business using cash, it would be a wise idea for every businessperson to try and exchange products for products or services for services. Look out for suppliers who are also in need of certain products and supply the products to them in exchange of products that you lack to run your business smoothly.
This is a good way for any type of business to conserve cash and retain cash inflow. By exchanging products for other products (barter trade), it means that you will be able to conserve cash in the business.
5. BUY USED FIXED ASSETS:
Before purchasing any new fixed asset, it is good to do some research on whether you can get the same machine which has been used but it is still in good condition. There are so many companies that have assets ready for disposal. Keep a close lookout for advertisements selling machinery that have been used from local auctioneers. Buying used machinery is much cheaper compared to purchasing new ones, which is a better way to save cash.
The aim of any business is to maximize profits and one of the ways to improve the bottom line is by reducing its expenses. If you cut on expenses, the cash outflow will be minimized and if the cash inflow is maintained or increased, then the business will definitely maximize its profit potential.
6. MAINTAIN AND REPAIR FIXED ASSETS:
Instead of buying new fixed assets every now and then, it is good to invest in the current ones that you have. You need to have a regular maintenance program for all machinery that the business currently has. This will go a very long way in minimizing unnecessary costs that would otherwise have been incurred by the business by buying new fixed assets every time.
Get a professional fixed assets mechanic or technician with the necessary qualifications and experience to work on your fixed assets. This will ensure that all your machines are in good operating condition always. This is very vital because it will prevent you from having mechanical breakdowns often. The money that would otherwise be used to buy new machines will, therefore, be conserved and maximize the profits for the business in the long term.
7. REDUCE YOUR STAFF NUMBERS:
One of the major factors that could really drown your cash flow is by having too many employees in your business. Instead of employing new individuals whenever the business expands, it is advisable to utilize the potential that the current employees have to their maximum potential. Before you hire a new employee into the business, it would be great to weigh both the pros and cons of taking such an action.
If the benefits of hiring a new employee outweigh the salary burden, then you may go ahead and hire one but if the reverse is true, then hold off for now to avoid financial constraints and reducing cash flow into the business.
8. AUTOMATE AND KEEP A LEAN BUSINESS OUTFIT:
As a business owner, it is good to resist the temptation to buy new fixed assets or hire additional employees so as to conserve cash flow for the business. Before adding any extra expenses, it is good to weigh both the pros and cons. If the pros lead the race, then go for it but if not, stop that decision and work with what you have. This will help you retain cash flow in the business.
We all know that maintaining steady cash flow in any business is very challenging. However, with the above steps, you will be able to improve your company’s bottom line and the overall success of your business.