Cash flow management is a crucial aspect of running a successful business. This, of course, is nothing new. It involves keeping an eye on the inflow and outflow of cash in your business to ensure that there is always enough money to meet your SME’s financial needs.
Poor cash flow management can lead to problems down the line like cash shortages, missed payments, and left to go on long enough, even bankruptcy.
This blog, part 2 of our 4-part series, will discuss two essential aspects of cash flow management.
- Expense and Inventory Control
- Credit Control and Sales Strategies.
Now, let’s dive in!
Managing your Cash Flow with Expense and Inventory Control
Effective cash flow management is an important aspect of running a successful business. One of the most significant challenges in this process is controlling expenses. To maintain a stable cash flow, you need to monitor your expenses closely and manage them effectively. This includes keeping track of all expenses, from fixed costs like rent and salaries to variable expenses like utilities, supplies and, yes, even that mid-afternoon coffee run.
By doing so, you can identify areas where you can cut costs, negotiate better deals with suppliers, and make informed decisions about future investments. Additionally, good expense management practices can help you avoid cash flow crises and save money in the long run.
Here are some tips for taming your business expenses:
- Create a Budget and Stick to It: Creating a budget is the first step in controlling expenses. You probably know what a budget is, but let’s go over it one more time. A budget is a financial plan that outlines the expected income and expenses for a specific period. It helps you identify areas where you can cut costs and allocate resources more efficiently. Once you’ve created a budget, make sure to stick to it. Review your budget regularly and adjust it as necessary.
- Monitor and Analyse Your Expenses: Regularly monitoring and analysing your expenses is essential for controlling costs. It helps you identify areas where you’re overspending and make necessary adjustments. Use accounting software like Lulaflow, Sage or Xero to track your expenses and generate reports that provide insights into your spending habits.
- Negotiate with Suppliers: Negotiating with suppliers can help you get better deals and reduce expenses. Talk to your suppliers and negotiate better prices or discounts for bulk purchases. You can also explore other options, such as switching to cheaper suppliers or using alternative materials.
- Control Your Inventory: Inventory management is another critical aspect of controlling expenses. Excess inventory ties up cash and can lead to significant losses if the products become obsolete or unsold. Use inventory management software to track your inventory levels and make informed decisions about when to reorder and how much to order.
- Cut Unnecessary Expenses: It’s essential to cut unnecessary expenses that don’t contribute to your business’s growth or profitability. Review your expenses regularly and identify any expenses that you can eliminate. For example, if you’re not using a particular software or service, cancel your subscription to save money and maybe keep those afternoon coffee runs to a minimum.
- Increase Efficiency: Increasing efficiency in your business processes can help you cut costs and improve cash flow. Automate repetitive tasks, streamline workflows, and eliminate bottlenecks to enhance productivity and reduce wastage.
Credit Control and Sales Strategies To Boost Cash Flow
In addition to controlling expenses, boosting cash inflow is another critical aspect of cash flow management.
Here are some tips for boosting cash inflow:
Implement Effective Credit Control: Effective credit control ensures customers pay their bills on time. Late payments can cause cash flow problems, especially for small businesses. In fact, late payments are often cited as one of the most frustrating aspects that impede positive cash flow. Implementing credit control measures such as credit checks, payment terms, and late payment fees can help you manage your cash flow more effectively.
Offer Discounts for Early Payments: Offering discounts for early payments can incentivise customers to pay their bills on time. For example, you can offer a 2% discount for payments made within ten days of the invoice date. This can help you improve your cash flow by encouraging customers to pay quickly.
Remember, even if you’ve owned a certain amount or invoiced a certain amount, it isn’t part of your cash flow until it hits your bank account.
Improve Your Sales Strategies: Improving your sales strategies can also help you boost your cash inflow.
Here are some tips for improving your sales strategies:
- Focus on your target market: Identify and tailor your sales strategies to their needs and preferences. Don’t know who your target market is? Do some research, check out your social media statics, or even better, survey your customers.
- Offer unique value propositions: Differentiate yourself from your competitors by offering unique value propositions that appeal to your target market. In one sentence, what makes your business unique?
- Use social media: Use social media platforms like Facebook, Twitter, and LinkedIn to promote your products and services and engage with your target market.
- Offer referral incentives: Offer incentives to customers who refer new business to you, such as discounts or free products.
Expand Your Product or Service Offerings: Expanding your product or service offerings can help you attract new customers and increase sales. Identify areas where you can expand your offerings and invest in research and development to develop new products or services that meet the needs of your target market.
Increase Your Prices: Increasing your prices can also help you boost your cash inflow. However, it’s essential to do so strategically to avoid losing customers. Conduct market research to determine your competitors’ price points and adjust your prices accordingly.
Offer Financing Options: Offering financing options can help attract customers who can’t afford to pay for your products or services upfront. A leasing program or payment plan can help increase cash flow by allowing customers to pay for your products or services over time. Buy Now, Pay Later, sound familiar?
Effective cash flow management is crucial for the success of any business. By implementing expense and inventory control measures, credit control, and sales strategies, you can improve your cash flow, reduce financial stress, and ensure the long-term success of your business.
Learn more by downloading our free Cash Flow Coaching Ebook and subscribing to our biweekly newsletter, Lulalens. If you missed part 1 of our blog series, you can read it here.
