Is your business always strapped for cash? Even the most profitable businesses can still have cashflow problems. Why? Businesses don’t spend profits – they spend cash.

Cash can go towards additional assets, payment for loans and creditors, on wages and stock.

Cashflow can go from positive to problematic very quickly in business.

This is where cash flow planning and projection is of particular importance. This will allow you to identify times when cash can be tight and put in place a plan to get through them.

With a cash flow plan, you can set aside cash when there’s plenty, to compensate for leaner times.

Here are three ways to improve cash flow:

Make sure the invoices you issue are paid on time

Getting your debtor invoices paid on time means that you have the cash in your hand.  A good debtor policy will not only help your cashflow, but free up time from chasing payments. For this to happen, you can:

  • Consider asking for up-front payment, or payment on delivery/completion or shorten your payment terms i.e. from 30 days down to 14 or 7 days.
  • Provide an estimate of the price before starting work
  • Implement payment terms and communicate these terms upfront
  • Provide the invoice promptly when the service has been completed
  • Include multiple payment options – Cheque, Credit Card, and Direct Credit

Reduce your Stock on Hand

Remove unnecessary stock that you might have in your inventory. An item sitting on the shelf is not money in your pockets.

You can try any of the following:

  • Find a supplier that has low or no delivery cost, who can delivery quickly
  • Find a supplier that allows you to order in low volume without added expense or on an as-needed basis
  • Reduce the range of products you stock by focusing on what you’re able to sell the most, at the best possible margin
  • On the contrary, you may find buying in larger volumes much more cost effective as you can receive discounts from the supplier. You just need to make sure you are able to turn over the items quickly so you’re not left with redundant stock

Consolidate Debts

By consolidating debts it can reduce the number of payments monthly making it easier to budget for and track. If you are consolidating short term loans, credit card and other forms of credit you can get a reduced interest rate which may reduce the amount of each repayment.

PJT has helped many of its clients with developing cashflow projections and we can help develop one for you too. Please contact your advisor today for a confidential discussion.