One of the most important lessons to learn when running a business is how to keep up a healthy cash flow. Of course, you can’t always plan things down to the last dollar. No matter how perfectly you’ve mapped out your budget, your industrial freezer will break down or you’ll need to order extra stock of those super popular reindeer snowshoes. If the unpredictability of the modern world has left you struggling with cash flow issues, you are not alone – about 60% of business owners admit to finding this a major challenge. To help you out, we’ve developed five tips that should keep your finances as free-flowing as the Amazon River.
Tap Into Supply Chain Finance
If you run a product-based business, then you know that you can’t make money without stock. But anyone who purchases goods or parts from overseas knows that there is a significant gap between raising a purchase order for the products you need and the income you get from the sales. Supply chain finance is specifically designed to help importers and manufacturers order products or parts from overseas to bridge the gap between making a payment and invoicing customers.
Offer a Subscription Service or Retainer
One of the biggest challenges for business owners is forecasting what money will come in and when it will arrive. Offering a subscription service or a monthly retainer ensures that your company brings in a base level of income to support your cash flow throughout the year. It can also be a great way to add value to your ongoing customers. They can get the products and services they need without having to remember to order them each month. If you go down this route, it’s worth offering people a better deal for being regular customers.
Know Your Costs
Cash flow issues arise when businesses lose track of their expenses and struggle to cover incoming costs. You need to have a robust system to ensure you know what needs to be paid when. Just like with your household budget, it is worthwhile trying to space your major expenses out throughout the year. This will mean you don’t need to pay a significant tax bill the same month as your insurance is due.
Don’t Put all your Business in One Basket
Okay, so it is a bit of a mixed metaphor, but bear with me. If you have two major customers who bring in 100% of your income and lose one of them, your income drops by 50%. If you have ten smaller customers bringing in 10% and lose one of them, your income is still up at 90%. These are simplified examples, but they illustrate an important point. Nothing is ever certain in life or business, so spreading your risk between multiple customers or clients is always smart.
Have a Back-Up Fund
Don’t forget that you might need to place an extra-large order for reindeer snowshoes or replace an expensive piece of equipment. You can’t run a restaurant without a cool-room or a coffee shop without a top-of-the-range coffee machine, so having an emergency fund on hand is crucial to ensure you can keep operating, no matter what happens.
Having healthy cash flow not only ensures that you can pay your bills but also allows you to invest back into the business to grow and expand. Take the time to get your cash flow in order, and you’ll be setting yourself up for a long and happy career as a business owner.