As an entrepreneur, you have to monitor the financial health of your business consistently to meet its financial obligations on time. You can easily assess the financial health of your business by measuring cash flow – the difference between the cash inflow and cash outflow over a specific period of time. The business cash flow can be either positive or negative.
A positive cash flow will help you to meet the short-term and long-term financial obligation, in addition to sustaining growth. On the other hand, a negative cash flow will compel you to borrow funds to meet the immediate financial obligations of the business. You must explore ways to maintain positive cash flow to make your business profitable. You can maintain a positive cash flow by focusing on a number of factors.
7 Tips to Sustain Positive Business Cash Flow in the Long Run
1) Maintain Some Cash Reserve
Often entrepreneurs utilize the surplus cash to improve business processes and operations. For instance, many businessmen invest the surplus funds in delivery vans, equipments or furniture. The investment often leads to cash shortfall and negative cash flow. You must maintain some cash reserve to meet the short-term financial obligations of the business on time. The reserve can be maintained in two distinct forms – cash in hand and cash at bank.
2) Reduce Receivable Cycles
You must collect receivables on time to maintain a positive cash inflow. It is always important to keep the account receivable cycles short to ensure cash inflow. While selling goods on credit, you must restrict the receivable cycles from 30 to 60 days. You can even persuade customers to buy goods on cash by offering attractive discounts. The short account receivable cycles will help you to avoid cash shortfall in the short term.
3) Extend Payable Cycles
In addition to shortening the account receivable cycles, you also need to extend account payable cycles. It is always a good idea to extend the payable cycles to 90 to 60 days to reduce cash outflow. However, you must remember that certain creditors may charge late fees. You must keep in mind the terms of sales agreement while extending the payable cycles.
4) Pay Bills on Time
You can always increase cash inflow by extending account payable cycles. But you must explore ways to extend the payable cycles without increasing cash outflow. There are many creditors and suppliers who charge late fees. The late fees will require you to pay more and increase cash outflow. You must make it a practice to pay your bills and debts on time to maintain a positive cash flow.
5) Boost Sales without Offering Discounts
An increase in sales will help you to maintain a positive business cash flow in both short and long runs. But you must explore ways to boost cash sales and reduce credit sales to improve cash inflow. You must sell good on credit only to reliable customers to avoid bad debts and boost cash inflow. You can easily boost cash sales without offering discounts by offering free delivery, persuading customers to review the products, providing multiple payment options, and highlighting the unique selling point (USP) of each product.
6) Ask for Partial Payment or Initial Deposit
While running a business, you have to sell good on credit to beat competition. But you can always maintain a positive cash flow by asking the creditors to make partial payments. You can even ask the creditor to make payment in installments after making an initial deposit. These options will help you to generate regular cash inflow and meet emerging financial needs. Also, you can consider using the online and mobile payment solutions to receive payment from creditors on time.
7) Raise Short-Term Credit
There are always chances that you have to resolve short-term cash flow problems to run your business smoothly. You can easily resolve the business cash flow problems by raising short term business loans from banks and financial institutions. But you must avail short-term credit at low interest rates to prevent cash inflow. Likewise, you need to focus on the terms of lending to ensure that your cash flow remains positive.
You must make it a practice to track your business cash flow consistently. You can even measure the cash flow for your business in a number of ways. The constant monitoring will help you to increase cash inflow and reduce cash outflow. The business cash flow calculation will help you to assess the business’s financial health and meet its financial obligation on time. You can consider deploying a skilled accountant to monitor the cash inflow and outflow by preparing cash flow statements periodically.