Eight out of 10 businesses fail in the first 18 months and Ninety-six percent of businesses fail within ten years. Much of the time, problems that bring an end to a business involve cash flow. Even once a company is generating revenue, without a steady flow of cash, it will likely fail. This article provides proven methods for increasing business cash flow.
Highs and lows are typical of any business. For example, clothing retailers typically have their best months during Christmastime, while school suppliers do well at the beginning of the scholastic year. Analyze your cash flow based on cycles in order to understand your business. Using this information, you will time borrowing, hiring, and boosting marketing efforts more strategically.
Experts at Entrepreneur.com suggest reinvesting 50 percent of your profits back into your business in order to sustain growth. Improve cash flow by taking effective steps to build your business, such as training staff or boosting your marketing. For instance, a new sales team is a costly investment, but should quickly prove their value with increased cash flow. Similarly, sales training, marketing, pricing, or other strategies should result in improved returns. Do research to find the most effective way to reinvest in your business.
Tip: Your accountant can help you with this! He or she can provide analysis of your funds and the overall market over a year in order to give you realistic expectations. He or she will also be able to make suggestions for staying cash positive.
Evaluate your pricing strategy based on your business costs. You may be concerned that your sales will suffer if you raise prices, and while that is a possibility, don’t come to any preconceived conclusions without first testing to find out what the market can bear. This is especially important if your business requires you to purchase physical inventory before you can make any sales. Some benefits of reevaluating your pricing include:
[pullquote]Keep in mind that if your pricing is too expensive, you will lose some business to competitors.[/pullquote] Recognize that a lot of margins sits in the happy middle and that your task is to find a price point that helps boost your cash flow while avoiding losing sales. Run assessments in order to understand your customer’s price points. To increase prices, start by assessing the market costs of your products. Next, choose a small number of goods or services to test, and begin raising prices. Take the information from new sales and compare it to sales before the change. If sales increase, add more products to the test, if not, watch the comparison for a longer amount of time, and make changes based on the results.
Take some time to look at where you are spending your money. Integrate an expense management platform such as Divvy, which provides you with control of spending and an overview of expenditures. Some platforms allow you to set budgets and monitor your spend in real-time while also suggesting better ways to spend your money.
Take every step possible to shorten the process of receiving payment.
Use high-interest savings account for business so you can earn a competitive rate of interest on your cash on hand while keeping your funds accessible. You can earn interest every day on each dollar saved and can withdraw the money whenever you need to by using an account of this nature. Internet savings accounts are a great example of higher interest accounts; many offer debit cards that give you immediate access to your funds, though you may have to keep certain minimums in the accounts. Talk to your accountant to find the best options.
Having cash on hand at your business allows you to prepare for emergencies, take advantage of amazing bargains, or cover expenses when sales are less than forecasted. Implementing the recommended cash flow strategies above can reduce the likelihood that you will be forced to make desperate decisions, build your bank balances, and extend the number of strategic options available to you as a company.
Various tactics from analyzing your cash flow to restructuring your prices and how you accept payments can help you increase cash flow at your business. By increasing cash flow, you can be certain to have the assets you need to build your business, expand your clientele, and be prepared for the unexpected. How have you increased cash flow in your business? Please add ideas in the comments below.
At Divvy, our mission is to help businesses spend smarter. We created the world’s first totally real-time expense and budget-management platform. The app allows you to request and allocate funds between team members, see where your funds are going each month, and analyze company spending. You can even set budgets before the big business trip, allowing you to proactively take control of spending instead of retroactively reimbursing. The best part: it’s 100 percent free.
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