There are all kinds of reasons that your business might experience cash flow gaps, many of them having to do with lower than expected revenues, but since cash flow is the lifeblood of your business, you simply must find ways of overcoming any gaps. Here are some of the most common ways to manage cash flow, so that you can maintain a consistent and positive cash position, and can mitigate the effects of any cash flow gap.
For many businesses, incoming revenues are the direct result of invoices sent out to customers for purchased products. In order to encourage faster payment of those invoices, make sure to bill customers immediately after the purchase, rather than allowing a number of days or weeks to pass before you hit your next invoicing cycle. If your business seems to have a number of slow-paying customers, it may be time to change the payment terms, and require faster remittance after billing.
Pay attention to your cash flow statement
The cash flow statement lists all the elements of revenues flowing into your business, as well as expenses flowing out of it. By carefully reviewing and analyzing net profits, financing, bills, debt, payroll, inventory, et al, you can have a firm grasp on your profitability. If there are components of your business which have become obstacles to profitability, they will be identifiable on your cash flow statement, so you can take the necessary steps to correct the situation.
Manage margins and COGS
If your business is only barely profitable, one of the problems may be that your margins are too low, and need to be increased to give you a little more breathing room. With even slightly more profitability, cash flow gaps may appear less frequently, and may be less significant. Managing cost-of-goods-sold can be another very fruitful area of examination, because if you are spending too much to produce your product, that will act as a drag on profitability. Find ways to reduce your COGS, and that will lower expenses, while consequently raising profits.
For more information about managing your cash flow and other business financing opportunities, contact Speritas Capital Partners at 203-247-4358.