Profit maximization is a key goal for Homepage. Profit is exactly what keeps businesses operating; and it’s the reason why you’re in business. But from the short term perspective, business people must be equally dedicated to cash flow management and optimizing cash flows. As your small business owner, you should clearly comprehend the cashflow situation for your business; a negative cash flow can lead to a complete business failure. Read your statement of cash flow for your business regularly and make sure, particularly during tight cash periods, that you, or your accountant, know on a regular basis the bucks inflows and cash outflows of the business. Make the improvement of cash flow a primary business strategy; particularly during tough times.
Consider progress billing for big orders or perhaps for jobs that will require a longer time period to accomplish. For example, a renovation contractor may progress bill work that will take more than a couple of weeks to complete. He will bill a third of the job up-front to cover materials, bill the next third half-way through the job, as well as the last third on completion. Another example, a printer asks for 50 percent of the expense of a sizable job upfront to get a new customer. The balance is due on pick-up. Both these small businesses proprietors make their terms clear in the first place, on the quotes and on the progress billing. Through this method you can get a more frequent and consistent cashflow.
Be aware of the economy as well as your market environment. When the economy is very slow/weak, good payers can become slow payers. If you track your receivables closely and when you develop good relations together with your customers’ accounting people, it is possible to find out a payment slow-down coming and become better in a position to manage your money and focus on profit maximization. (Nobody wants to be surprised about a customer going out of business – while owing serious cash.)
Reduce inventory. But do not reduce inventory towards the level it will hurt sales. An inventory reduction will help you reduce your investment, reduce cash costs and cash outflows.
Develop new terms with your suppliers. Ask them to hold inventory on the floor for you (do not turn this purchased inventory). Or question them for longer payment terms in a slow duration of sales (for example sixty day terms). This may lower your cash outflow. This plan may have the added advantage of forcing you to produce a better operation when you streamline your purchases to your just-in-time cycle.
Enhance your sales plan weekly (for the upcoming period – month or quarter). The sales plan has to be current and must reflect market conditions, competition and your capabilities. Manage the weaknesses and the strengths. Why are your top two customers buying less than 50 per cent with their normal volume? Your sales plan ‘feeds’ your cash flow projections.
Examine next. Are you currently in a position to consolidate loans (charge cards, equipment loans, line of credit, and more)? Banks are usually more prepared to lend serious cash when you don’t want it (this really is wrong I am aware, but generally true). If you need money in a hurry, banks get anxious. For those who have money in your money and your income is positive, banks are typically pleased to lend serious cash.
Therefore negotiate an organization credit line – for use when you need it – during happy times, not when the business has gone flat. Invoice your clients daily. As soon as you ship your products or services or deliver your service, invoice your customer. Fast when possible, otherwise invoice the following day. If funds are tight, and you will have a justifiable (towards the banks) reason, including you’re entering your busy season and need to construct inventory, check with your bank to determine if they enables you to re-negotiate your short-term debt (say from 2 years to three years). Also in case you have a vehicle (or cars) on business lease coming due, see if you can re-finance it for another year or so. Re-financing it or extending the lease will mean that you simply will defer the inevitably higher price of a new car lease.
Manage your cash flow by looking aggressively at approaches to reduce cash outflow, while increasing cash inflow. Most businesses get their statement of cash flow in their monthly financial statements process. However, if cash is tight, create a daily cashflow projection spreadsheet. When you manage your incoming and outgoing cash on a regular basis, you are going to feel more in charge, save money and look for approaches to increase revenues and decrease expenses. Start your cash flow projection with the addition of money on hand nzvpbr day 1, with cash incoming or received (receivables, interest, sale of equipment, etc.) in the daytime/week/month from various sources and after that what and once the money outflow needs are (wages, benefits, insurance, rent, taxes, utilities, contractors, association fees, debt and interest payments, etc.).
Even when you have cash to pay your bills, don’t pay early – keep the funds in an interest account till you have to pay for the bill. In case your supplier’s terms are net thirty days, pay your bill in 30 days. Setup together with your bank and use this link to pay for electronically.
Bonus tip: Consider what assets you can sell: under-utilized assets (also known as equipment); inventory reductions or sell-offs; in the event you own the structure or the land, consider selling it and renting it back; or whatever will make you some quick money (legally).
Profit maximization is really a primary goal for virtually any business, and cash flow management is actually a key strategy for business sustainability.