Tectono Business Review has
observed that many business owners, particularly new ones have problems in
managing their cash flow. This circumstance has made it difficult for them to
manage their business operations adequately. Yes, in an attempt to attract
customers and improve sales, most business start-ups offer discounts and give
extended credit period to loyal customers.
Consequently,
after sometime, business start-ups are incapable of replacing stocks and have problem
in meeting customers’ demand, and to cap it, the once booming business begins
to depreciate.
Tectono Business Review has
underscored the main errors such business start-ups make as obtaining loan at
high interest rates with a short repayment period. Such business owners rather
than investing the funds in products that can bring in return on investment
within a short period, they spend it on high-priced infrastructure that have no
immediate returns. In business, cash is king and for a new business, a regular
cash flow is very important.
All
activities revolving around business require cash, and when it is not properly
managed, the business may fail. Below are how to avoid cash flow problems:
Be
selective in offering credit
The habit of
offering credit to customers involves giving them the option to purchase
products or services now and pay for them at a later date. In most
manufacturing and construction industries, credit are extended through invoices
but that may not be practical for every business. The advantages and disadvantages
of extending credits have to be weighed.
Credit offering
to customers has to be selective and business owners have to launch an
investigation to determine whom to give, how much to give and the number of
days to give for payment. They should consider extending credit if that is the
only option required for customers to buy from them. If handled very well, it
can keep the business afloat. But if not managed properly, it can lead to
business failure. When extending credit, the cash required for business
operation within the period given for payment has to be recouped through other
means. This method helps in strengthening business-to-customer relations and
reduces unnecessary emphasis on the price of the products or services.
Work
with good cash plan
It is
important to understand the amount of money that goes into expenditure and
incoming cash over a period of time. This will help you to make budget for each
month, make investments and have enough to meet with unexpected cash
obligations when it arises. After studying your cash flow for some months, make
an estimate of expected revenue from services or goods for the next month. For
a small business that has obtained loans from banks, ensure that the profits
from the business are able to cover the recurrent expenditure and repay loans.
Get
your pricing right
Companies experiencing
cash flow management problems may have under-priced their products and services
to satisfy their customers. Increasing your prices may lower sales volume slightly
but will enable the business manager to make up for decreased volume with
higher profit margins. Lowering the prices can as well increase profits because
the level of patronage will increase significantly. The market’s response to
higher prices should be tested by changing prices in targeted areas. Price
review should be carried out on an annual basis. In order to reduce cash flow
problems, Sage accounting offers some suggestions
Prioritize
efficient stock management
Efficient
stock management is just as important as managing cash flow. Business owners
should reconcile their stock records at the same time when they reconcile their
bank accounts – either weekly or monthly. This way, they will remain on top of
items that they have left in stock and those that require reordering. An
efficiently managed stock control system will have a positive impact on their
cash flow because they will never be holding too much stock, or have all their
money tied up in it.
Minimize
your expenditures
Avenues
through which cash leaves the business should be re-examined to identify
loopholes. Assess the frequency with which you pay suppliers, tax bills, utilities.
Is it possible to pay in installments or make terms more flexible? Use your
powers of negotiation to strike deals that are favourable to you and your
business. Also, check on all those little things you spend money on that can
add up – as the old saying goes, watch the pennies and the pounds will take
care of themselves.
Foresee
problems before they happen and avoid them
Monitoring
market conditions and observing the trends can help businesses to identify
problems. You have to identify potential cash flow problems in advance by
regularly updating your cash flow forecast, monitoring market conditions,
keeping an eye on customers and suppliers who may be in trouble, and taking
action as soon as you see a problem. Don’t bury your head in the sand and hope
an issue will go away. By keeping on top of your cash flow you’ll be able to
deal with problems quickly and efficiently.
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