In our previous post we explored how to evaluate your strategy in practical ways that save you money.
In Part 2 of this series, we consider opportunities to free up more dollars and increase your cash flow by reviewing the business model, utilizing solid projections, scaling high cost inventory, and prioritizing your new approach.
How to Improve Your Business’s Cash Flow – Part 2
Develop a Realistic Business Model. Having a realistic business model in place is sure to help your company succeed and grow. Establishing a metric that allows you to manage your company on a daily basis will provide a benchmark that helps you make major decisions about the future.
Use Solid Projections. If you are not prepared for your company to grow quickly, it is easy for things to fall apart. When sales grow, a business requires more inventory and employees, which means that more money is going out the door. It is crucial to create solid projections that take a long-term approach and provide an idea about the likelihood of meeting monetary goals.
Although projections offer good insight into cash availability, they are merely estimates that will change with time. Seasonal fluctuations, taxes, equipment purchases, and advertising must be considered as well. Since there will be times when you are short on money, you should make arrangements for extended terms from suppliers and a bank line of credit.
Lower High-Cost and Low-Turnover Inventory. Keeping expensive inventory that does not sell only weighs your company down. It is wise to sell old inventory for the best price and concentrate on inventory that moves quickly. The increased cash will help to heighten your company’s money flow, to pay bills, and to expand.
Make it Top of Mind. If you feel that your flow of cash is important, you should make it a top priority with your management team. Explaining the importance of having a decent amount of liquidity will make them change certain practices that may not be working. To motivate your workers, it may be wise to set targets and to reward employees who make efforts to reach revenue goals.
Improving your small business’s cash flow is essential. If you would like to learn more about how a chief financial officer can help, please contact me at 901-277-6165 or complete my online contact form.