Times have changed considerably and in the modern days, you can easily start up a business and operate on a large scale. Almost every sector presents a wide range of opportunities for entrepreneurs. However, starting and running a business efficiently may not be easy as we may perceive it at first. Technology as we all know is helping businesses globally to operate efficiently and to thrive, but there comes another hurdle, Cashflow!
Cashflow realities are intricate topics when it comes to business management. Cashflow management falls under the umbrella of financial literacy and comprises the way business owners handle cash matters. Financial knowledge is very crucial in business management since it influences business operations, growth, sustainability, and expansion.
In fact, statistics show that 82% of small businesses fail due to poor cash management. Improper handling of cash can lead to business failure and there is no doubt, it is an aspect that many businesses struggle with. If you’re a business owner or have lately started a business, we would like to explore a few tips that can help you manage and improve your business cash flow. Let’s take a deep dive into it by beginning with a cash flow definition!
What is Cashflow?
Cashflow generally refers to the way money comes in and goes out of the business. In other words, the movements of cash in a business refer to cash flow. Good cash flow enables a business to stay afloat, meet operational costs and scale up. However, poor cash flow, which commonly springs from a lack of financial literacy affects business operations and growth.
Good cashflows indicate that a business is growing and that it can sustain itself. It allows business managers to operate efficiently, and reduce the likelihood of loans, and investor dependency. Running a business comes with a range of complexities i.e, employee pay, daily operating expenses, and risks.
Moreso, you may have different growth plans, for example, AI deployment or implementing newer technologies like AR or VR or you may want your business to enter the metaverse. With such great ideas, poor cashflows can limit business growth opportunities. But what can you do about it?
5 Actionable Tips to Improve Business Cashflow
Whether you’re running a small business or an enterprise, these few cash management tips will help you improve your business’s financial health;
Encourage customers to Pay on time
It is good to extend trade credit facilities to customers, but it’s essential to evaluate business capabilities first. Providing goods on credit, discounts, and other incentives can promote business sales, but if poorly managed, can cost a business heavily. If your business provides such to customers, they must be encouraged to pay back on time.
Encouraging customers to pay on time helps a business to run efficiently. An organization will not have to apply for loans to meet daily expenses or plan for growth. Apply payment deadlines, request for initial deposits, and introduce realistic penalties where necessary to drive customers to comply with payment terms.
Additionally, monitor cash inflows and outflows to understand monthly or weekly expenses. This will help in financial planning, improvement, and management.
Invest in Affordable Marketing Techniques
Marketing activities promote a business’s goods and services and allow it to extend its reach. Effective marketing strategies also enable a business to attain a competitive advantage in the marketplace. However, marketing is quite expensive, especially when running multiple campaigns.
Above all, marketing can cost business owners heavily when done wrong. With that, it’s essential to evaluate marketing strategies to ensure that they are affordable and relevant to business goals.
In the case of a startup or a small business, avoid investing in costly marketing strategies. Leveraging effective copywriting tips and low-cost marketing strategies like video, blog, and email marketing can help a business promote its offerings on a low budget. Above all, you can invest in social media marketing.
Social media marketing is an effective way to promote your products, develop customer relationships, and extend business reach. Utilize social platforms like Instagram, Facebook, and LinkedIn among others to market your business and its offerings. In this way, you will manage and improve financial cashflow better.
Avoid Unnecessary Spending
Business management expenses can’t be taken out of the equation, but business owners usually have the upper hand in them. Quite often, you may want to provide employee perks, rent an attractive office space, or throw annual company parties, but it’s important to check their affordability.
Start by evaluating HR operations and expenses. In this case, avoid hiring without a proper plan. Overhiring or wrong hiring plus unmonitored daily HR expenses are major causes of unnecessary spending. Also, avoid office spaces that are highly priced because they only increase business expenses in the long run. Primarily, evaluate and then approve requirements before spending.
Evaluate Cashflow Patterns
Monitoring cash inflows and outflows weekly, monthly, and annually can offer insights into business spending. The best way to ensure effective cash flow management is to create cash flow statements. A cash flow statement is a financial document that allows businesses to manage and improve their finances.
It generally showcases the amount of cash present in proportion to the cash that comes in and goes out of the business. Creating other financial statements like a balance sheet, a tax return, and an income statement can help business owners evaluate and improve cash flow. Generally, they help business owners understand money movement patterns in order to eliminate unnecessary spending and acquisition of loans. It also paves a way for effective financial planning.
A budget is an excellent financial management tool and that’s why it’s important for business owners to engage in budgeting. Budgeting is mainly a process of estimating the possible expenses and revenue of a business. Operating on a budget serves as a compass for all the financial dealings of a business.
Create a budget and leverage financial KPIs to gauge your monetary dealings, revenues, and overall financial performance. A budget can also help to eliminate unnecessary expenditure patterns that affect a business’s financial prosperity. In this way, you will be able to improve cash flow effectively.
It is quite challenging for business owners to manage their cash flow effectively as there are many possible uncertainties that can be encountered in daily operations. However, Financial statements like a cash flow statement can help any business owner understand, and monitor the in and outs of a business’s cash flows. When properly used, a cash flow statement can help determine unreliable financial patterns that affect a business’s financial health.
This blog details a few ways business owners can utilize to improve their financial health. When seriously followed, they can help increase business profitability and cater to smooth operations and lay a foundation for business growth.