Accounting & Finance
Climbing Out Of The Money Pit! Quick Ways To Improve Business Cash Flow
There are so many ways that we can learn from our mistakes in business. Sometimes, we need to work on our personal development so that we are running the ship with an appropriate mindset. Still, other times, we face real emergencies that mean the business will sink or swim if we don’t do anything about it now!
Cash flow is one of those problems that every company suffers from, but if you fly blindly and plead ignorance to what’s going on in the bank account, you might not just find yourself without a company. You could find yourself persecuted, not to mention prosecuted!
No doubt you wouldn’t let it come to this, but if you find yourself with a real cash emergency, are there any ways to keep you afloat? But also, are there approaches to take advantage of so you can keep everything going if this was to happen again?
Get On Top Of Your Details
You need to know precisely what all your expenses are. Accounts payable, accounts receivable, your petty cash, your costs, the list goes on. It sounds like a self-evident starting point, but it’s surprising how many have no clue what their finances are there at any given moment, and secondly, how to handle expenditure as a whole.
The most challenging aspect of growing a business is getting new customers on board to consume the product, and this can mean a temptation to discount your products, so you can get these people to buy from you. But if you sell items at a loss, this will take even longer for you to get back up and running. If you choose to offer discounts in the short term, you need to know the costs and the impact of what you’re doing.
If you have no idea of the profit margins of each product or service you are offering, you’re not going to know if you break even. A break-even calculator is an excellent tool if you are not exceptionally skilled in mathematics. The best advice would be to lean on this until you get a good idea of everything in a financial sense.
Desperate Times And Desperate Measures
Ultimately, it doesn’t matter how you raise the cash, just as long as you present it. If you are in a position where you need to increase an exorbitant amount of money as soon as possible, you need to go to your customers. People that have bought from you in the past can be overlooked, but as part of your email marketing component, reaching out to them can provide you with a quick cash flow you haven’t considered.
It’s a challenging thing to do because, in some ways, it’s the equivalent of going back with your tail between your legs. But many businesses have done this and have succeeded. After all, if you don’t try, how will you know? But at the same time, it’s worth coming up with a few different quick cash flow plans.
At the same time, you can get the ball rolling with potential investors, while also considering how much free time you have to sell surplus items and raw materials, and trim the fat of the workforce. When you need cash, the most considerable underestimation is that you need a massive amount of money, so you go for the ample options. Don’t underestimate the smaller ones as well, because if you sell the smaller items, even though sites like eBay, these small items add up to a sizeable chunk.
Understanding Your Lines Of Credit
You need to know precisely what your options are. If you have a cash flow emergency, there are a few approaches to consider. Luckily, as far as acquiring cash flow quickly is concerned, it usually comprises of an application form and a phone call. These days, you could get a substantial cash injection in the space of an afternoon. But if you don’t know what your options are, how can you reach out?
Depending on your specific cash flow needs, the best resource can vary. In the line of peer to peer lending or angel investors, there are numerous components that can provide you with the cash injection you need, but also make sure that you’re not paying as much tax in the grand scheme of things.
But, in the short term, as you need an immediate cash injection, there are resources like loans, short-term, and long-term that can provide you with the money you need. The question is, which one should you go for? A short-term loan can provide that immediate cash upfront. Still, because the repayment schedules are short, usually running up to 18 months, the interest percentage is so high that the loan can quickly become very expensive.
It is an ideal option in an emergency, but you have to decide if it’s worth it right now. Long-term loans, on the other hand, can take a few weeks to process. You have to determine what sort of financial emergency you are in, and whether you have more time to repay the loans as well as lower monthly payments, it can be a welcome relief, just as long as you qualify for it!
The criteria will depend on how long you’ve been operational and if you have funds available, as well as what collateral you have to offer up should you be unable to repay. As well as these, you can get a merchant cash advance, work through invoice financing, even business credit cards can help, as well as a working capital loan.
Encouraging Repeat Custom
In business, you won’t see any profit until an individual customer makes, at the very least, their third transaction. You need to encourage customers to come back, and this will become your bread and butter down the years, so you don’t fall into the financial traps. While you can offer VIP programs, loyalty incentives and the like, if you’re savvy enough, offering up freebies that are low cost, but still encourage a customer to pay into your business, will result in a profit.
You don’t just have to go through the email approach to encourage repeat custom, imploring them to spend money on you. If you can disguise your desperation as an offer that benefits them while still making reference to the fact that you need their custom, you can either have their pity or their help. It’s a fine line because you have to benefit the customer and cater to their needs, but when you are in dire straits yourself, you have to decide if the desperation angle is suitable.
Not Falling Into This Trap Again
If you manage to get out of the problem, no doubt you’ve learned an abundance of lessons. But while the issue may have been procedural or resulting from a lack of organization, you can still find yourself falling back into the money pit. On the surface, having a good appreciation of your cash flow can help, but also it’s about the foresight to put money aside.
You need to reinvest into the growth of your business, and by putting at least 10% aside, if an emergency cash flow problem arises, you can at least put this money into it in the short term. But on the other hand, you’ll have to consider the resources that can help you trim the finances in different ways. Saving money on tax is an excellent example of this, as something like the innovative finance ISAs can ensure a certain amount of your investment is tax-free, so you don’t fall into this trap again. Finding tax loopholes is a clever approach, but with these comes a lot of regulatory gray areas.
This is why you should have an accountant on board, especially if you haven’t in the past! And doing this in conjunction with a back-end product or service, you are finding ways to keep the finances ticking over. If your finances go through peaks and troughs, it’s essential to work on a sustainable model concerning your customers. Back-end products can help a lot because it’s a way to entice customers in, but by having higher price points on back-end products, you’re able to recoup more.
Those financial worries don’t go away, but if it gets to the point where you’re so desperate that you’re considering shutting up shop. It’s not a case of bad luck. It’s a problem relating to the infrastructure or the planning and organization. Panic sets in! This then results in an unstable organization, especially from the perspective of the employees. This is another battle to contend with, so you must understand what your options are when you get into a cash flow crisis. If you need to earn money quickly, the possibilities are out there.
While these are worthwhile tips, always get professional advice before making any decisions regarding your finances.
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