Did you know that a leading reason that small businesses fail is poor cashflow management?
The Australian Bureau of Statistics tell us that more than 60% of small businesses will stop operations within the first three years of starting their business. ASIC tells us that a lack of cashflow or high cash use is, in addition to poor strategic management and trading losses, the most common reason for their failure.
Cashflow is evidently a fundamental building block for your business and the survival of your business. But what does it mean to have a good cashflow?
What is cashflow?
A positive cash flow means that you are bringing in cash faster than it is going out the door. This allows you to invest in your business, pay any money owing, cover your expenses and build up savings in case of a financial problem in the future. It basically means that customers are paying you before you need to pay your suppliers.
Profit vs Cashflow: Profit is the difference between revenues and expenses. Cashflow is the difference between cash coming into the business and cash going out.
A good cashflow is also essential if you are considering taking out a loan for your small business. Lenders need to know that you can pay the loan back.
If you’re in the market for a business loan, the team at FundingPro can assist you to find a loan that suits your needs. But in order to assess your ability to repay a loan, lenders will first want to see that you have healthy cashflow.
So, what are the ways to improve your company’s cashflow? Here are five tips.
How to improve your business’ cash flow
1. Take control of your billing cycle
The quicker you can get money from your customers or clients, the better it is for you. The amount of time it takes to get paid is known as your billing cycle and it needs to be carefully managed. If your business issues invoices, the sooner you can turn over your receivables (invoices), the more quickly it is possible for you to use this money to expand your business.
Offering a discount for early payment can be a great way to improve cashflow
In order to get cash upfront, you may also be able to use Invoice Finance to receive the money your customers owe you today. FundingPro are the business loan experts, and can match you to the best lenders for Invoice Finance for your business.
2. Stretch out your payment terms
It will also help your cashflow if you take the maximum amount of time that your suppliers will allow you for paying them, whether that is 30, 60 or 90 days. You could consider this as an interest-free loan.
If you have good relationships with your suppliers, you may even request that they extend your payment terms to give you even longer to pay. However, if you are a new business, or you have been late making payments in the past, it is unlikely your suppliers will extend your payment terms.
3. Streamline your inventory
If you hold too much inventory, it can be a huge detriment to your cashflow. If your inventory is increasing, it means that your business has bought more stock than it has sold and therefore has a negative cashflow.
You should regularly check your inventory turnover ratio. This is the cost of goods sold divided by the average inventory. It will tell you if you are keeping too much inventory and if your inventory needs to be streamlined. There is a balance that needs to be struck between having enough inventory to fulfill sales but not so much that it strains your cashflow.
4. Renegotiate with business and insurance suppliers
The sectors that supply you with services and goods are extremely competitive. So, whether they are insurance, software or other business suppliers, the last thing they want to do is lose your business. When your contracts with them are up for renewal, research what their competitors are offering.
Let your current suppliers know they are going to need to offer you better arrangements if they are to keep your business. They will most often happily oblige in doing so, so they do not lose you as a customer – and you getting a better deal means your cashflow is better too.
5. Apply for a Business Loan
Another way to immediately boost your cashflow is with a business loan.
FundingPro have a panel of more than 70 lenders and our team of dedicated business loan experts will help you find the best loan to suit your business in record time. Our transparency and integrity will facilitate you to make informed decisions about your financing options. Find a business loan to suit your needs.