If you have recently launched your startup company, then you are very much concerned about the steady flow of capital. It’s no surprise that cash flow is the necessity of every business. It plays a key role in maintaining the financial health of your business, no matter small, midsize, or large. From meeting payroll to paying the bills, investing in advanced business tools, to paying suppliers, your business should maintain a constant flow of working capital.
Incorporating a solid cash management system ensures that your business is able to deal with unexpected problems in operating the basic functions. When your business runs into a cash flow problem, it can badly affect your business growth and success. Therefore, managing money is important for your company to perform at its best over the long term.
Proper cash management is a sign that shows your business is financially healthy and growing. Here are some cash flow management tips for startups, small business owners, and future entrepreneurs who are thinking about company formation in Dubai.
1. Deliver Your Invoices Promptly
If you really want to manage your cash flow, you need to make sure that the invoices are delivered immediately so that you can receive payments from your customers. The sooner you send your invoices to your customers, the sooner you will get payments. Automated invoicing is indeed a great strategy to invest in to make the process highly efficient and streamlined. Online invoicing improves your turnaround time and sends invoices as soon as you receive the order request. Instead of waiting for the whole month, send an invoice as soon as the product is delivered or services are offered. The ultimate goal of sending invoices earlier is to receive money in your business bank account sooner.
2. Update Your Accounting Records
Being a business owner, you have to make important business decisions, such as product pricing, inventory, investment, and much more. Without financial records, you might not even know which projects are draining your resources and which projects are generating huge profits for your business. In short, updated bookkeeping records allow you to make well-informed business decisions.
It doesn’t matter if you are a newbie entrepreneur or running a business with thousands of employees; you need a bookkeeping record. Accurate books will save you a lot of time identifying which products are underperforming and which services are consuming too much of your resources’ time for little or no profit. You can improve your cash flow by keeping your accounting information updated regularly. When your books are up to date, you can gain a clear picture of your financial status and forecast future cash flow.
3. Enhance Your Receivable Process
Being a business owner, it is important to optimize your accounts receivable process to ensure your business cash flow is managed properly. The main idea is to speed the process of turning materials and supplies into products and inventory into receivables. Thankfully, there are a number of techniques that entrepreneurs can use to boost their accounts receivables. For instance, you can ask customers to make deposits at the time of placing an order. You can send invoices promptly and follow up immediately if payments are not made. Track your accounts receivables to identify your customers who didn’t pay the bill. You can offer positive incentives to customers to ensure on-time payments. Also, make sure your credit policies are clear to payers to avoid any ambiguity.
4. Sell Your Assets
Outdated and non-working machinery and equipment can be used more productively to generate capital. If you have invested in equipment that is unused or inventory that is becoming outdated, consider selling it to earn money. No matter if you sell below the book value, sell the idle equipment and inventory, which is useless for your business to maintain a healthy cash flow.
5. Lease Business Equipment
Investing in equipment and tools involved a large financial budget. No matter if you pay the total amount or acquire a machinery loan, you have to pay the installments for years. Many startups and small business owners can’t afford to purchase equipment and don’t acquire machinery loans. In that case, leasing equipment is a worthwhile strategy for their business. Leasing allows you to update the machinery from time to time and get maintenance-free of charge. It is a great strategy to set aside a budget for other business areas that can help your company grow and thrive.
6. Increase Your Profit Margins
Making more money is the ultimate goal of every business, no matter small or large. Increasing your profit margins is the key to earn more capital. Figure out your gross profit margin to analyze your products and services to check your low margin and loss-making items as well as profitable products and activities. You can also increase your prices to make more money on each sale and improve your bottom line.
Key Takeaway Optimizing the cash flow well can lead your business towards unprecedented heights of success. Businesses that fail to manage money may find it difficult to clear invoices, pay salaries, purchase new tools and products, which will eventually have serious consequences. These cash flow management tips will prepare you in advance to control your finances. Managing your cash will definitely improve your company’s cash position and provide you with more sales opportunities.