The principles of a healthy cash flow are simple – you need to have more money coming in than you do going out, and it needs to come in on time so that you can pay your bills and invest in growth. But getting it right may not be so easy. Here are eight things you can do to help avoid a cash flow crisis.
- Keep a cash flow forecast and check it regularly.
A good forecast will help you anticipate and prepare for cash flow fluctuations. Be sure to factor in seasonal variations like changes in your utilities in the summer or winter.
- Manage your incoming payments.
Send out invoices promptly and stay on top of late payments. Make sure you clearly communicate your payment standards and pay attention to payment delays. Payment delays can indicate that a customer might be going out of business.
- Manage your outgoing payments.
Take a look at how often you pay suppliers, tax bills, utilities, and other recurring bills. Don’t be afraid to ask for more flexible terms or to pay in installments.
- Manage your inventory.
Monitor your stock carefully and only order what you need to avoid tying up cash in excess inventory. Sell off old or outdated stock at a reduced price to generate cash. A cloud-based inventory management solution can help you find the right stock levels.
- Establish a good relationship with your lenders.
Make sure your bank and any other lenders know you and understand your business. That way, if you need a cash boost or unexpected financing, they’re more likely to work with you. Always be prepared with up-to-date books.
- Take advantage of available credit.
If your business is growing, look at establishing a line of credit such as an overdraft or short-term loan. As your revenue grows you can repay the debt.
- Eliminate unnecessary spending.
Know where your cash is going and make sure you are getting a good value for what you’re spending. And think carefully before making expensive purchases that will tie up your cash.
- Pay attention to the warning signs.
Identify potential problems by keeping your cash flow forecast current and reviewing it regularly. Monitor market conditions and keep track of what’s going on with your customers and suppliers that might indicate trouble.
An ERP solution like Sage 100 can give you the real-time access to information and the data visibility you need to stay on top of your cash flow. To find out more about Sage 100 and our other cloud-based solutions, call MicroAccounting today at 855.876.3773.