Creative Ways To Conserve Cash Flow For A Business
How to optimize your company's cash flow
Cash flow can be considered as the life-blood of a business. It is the means of buying supplies, paying salaries and making investments in capital assets, among other vital aspects of running the business. Business owners and managers who cannot manage their business cash flow efficiently are almost certainly headed for challenges. Conversely, those who are able to streamline and optimize their cash flow are guaranteed of improving every aspect of their business.
Conserving cash flow essentially means lengthening the life span of your company's cash. It entails maximizing the usage of available cash, ensuring every dollar is utilized properly, and only for important business affairs. When a business owner takes measures to conserve cash flow, this translates to the cash flow lasting longer. Here are six creative ways of how to do this:
In the same way a business owner will want customers to pay on time, the suppliers that extend vendor credit will want to be paid as soon as possible. However, paying vendors early can negatively affect the cash flow of a business, and should be avoided whenever possible.
A business owner should delay payment as long as possible while remaining consistent with the sales terms so as to avoid penalties. If there are no penalties for delayed or late payments, a pay cycle of between 45 days and 60 days from the day the invoice was received can be set.
Nevertheless, it is crucial for a business owner to ensure that favorable credit ratings and good cordial relationships with the vendors are maintained.
If for any reason the payments are delayed, the business owner must contact the vendor immediately and explain the delay and offer a plan for correcting the situation.
Where a business owner may not have reviewed terms with the vendors for some time, it is advisable to evaluate the terms and try to renegotiate for improved and more suitable terms.
Repairing capital equipment
Another cash flow conservation technique for a business is to consider repairing capital equipment instead of replacement. Having a regular maintenance program for such equipment will also save money. Other conservation methods include using reconditioned parts from third-party sellers instead of factory parts and outsourcing repairs if the work is too complex for in-house repair personnel.
Purchasing used equipment.
Generally, used equipment which is in good condition will work just as well as new machinery. The business owner can search local auctions and advertisements particularly for companies with foreclosed assets which are being sold by a lender. A business owner can save up to 80% by buying properly-functioning quality used equipment.
Leasing the equipment needed.
Leasing is a proven way of conserving business cash flow. Purchasing equipment is normally expensive, and this can reduce the business cash flow and dent the cash reserves. The leasing option means the business owner enjoys the functionality of the equipment without a significant cash outlay.
Making a trade for products or services
Vendors who are also customers can be approached and offered the chance of making a trade. This is where each of the two parties can agree to receive all or part of payments due in the form of finished products. Because the exchange value is normally set at the respective retail prices, the barter agreement essentially gives a discount that equals the net profit margin. This enables a business owner to retain cash which would otherwise have been used.
Keeping the business lean
A business owner may be tempted to get the newest equipment, best office space and the biggest staff complement. It is advisable to resist such temptations and focus on offering superior services and products. Before hiring new staff, the business owner needs to first optimize the efficiency of its current workforce.
If it becomes necessary to borrow money, the business owner should strive to take the minimum amount needed to meet the required objective. They must ensure they are able to handle payments on existing loans before getting extra loans so as to avoid defaulting and ruining the business. Borrowing and repaying smaller amounts promptly helps to improve the credit rating for the business owner, which qualifies them for reduced interest rates in the future.
In conclusion,finding the most effective methods of how to conserve cash flow is a challenge for a lot of businesses. Using the techniques outlined above will ensure that the business builds and sustains a stockpile of cash. This will facilitate maximum opportunity for growth, make it flexible and also give the business owner peace of mind.