One of the top reasons businesses fail is due to a lack of money, and one of the main reasons businesses lack money is due to poor cash flow management. With over half the businesses failing within the first five years of opening, this is a serious concern for entrepreneurs. There are a number of ways to get the cash flow problem resolved and here’s how.
Create a Workable Business Budget
It’s important to know exactly what goes in and out of the business at all times as proper cash flow management can only take place when the numbers are known. Business owners should be able to predict the majority of their expenses month-to-month and with this information, will know whether their sales turnover is high enough to meet these expenses.
Set Targets to Meet the Sales Expectations
A month goes by very fast especially when there are bills to pay. For entrepreneurs, the pressure of overheads can quickly overwhelm them if they haven’t met their monthly sales targets. In order to avoid the frustration at month end, businesses are encouraged to set daily and weekly targets instead. This allows them to quickly make up shortfalls and work out an action plan before month end rolls around again.
Inject Cash Into the Business
A cash injection into the business is often just the boost the business needs to get to the next level. It can either lead to expansion, a stock boost or simply to pay suppliers faster. This cash injection can be done as a business loan or the owner can decide to put owner’s equity into the business. This is done in a personal capacity and can be personal savings, retirement money, or by taking out a personal loan.
Manage Stock More Carefully
The best way to get the most out of stock is to find out which items are good sellers and have a good stock to turnover ratio. Items that stay on the floor too long could be burdensome to the business, especially when the profit margin on those items are not high. It’s also important for business owners to keep their finger on stock days to reduce waste and improve their turnover. Further market research may be required to get stock to sales just right.
Business owners who have a handle on their cash flow reduce the risk of business failure dramatically. There is still more work to be done such as the administration, final delivery of product, customer satisfaction, and more. With the cash flow under wraps, however, it frees up funds to employ the right people to take care of these items.
