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Cash flow is one of the cornerstones of business success. No matter whether your operations have come to a halt or simply need optimization, there are always ways to free up extra funds within your firm and free up cash.
Begin with an actionable strategic plan and break it down into quarterly objectives for maximum efficiency.
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1. Have a Strong Financial Plan
Your business’s health depends on achieving an equitable balance between its income and expenditure. That’s why understanding and performing regular cash flow projections are vitally important.
Create an annual action plan to increase cash flow and break it into quarterly objectives; for instance, if you’re seeking to boost sales, one quarterly goal could include selling to new customers.
One way to enhance cash flow is to speed up payment processing with credit card solutions which can allow you to receive your payments the next business day and reduce days of sales outstanding.
Other strategies to boost cash flow may include offering discounts to clients who pay early; negotiating better terms with vendors; cutting costs on non-essentials (like wasteful office coffee budget); or creating an emergency savings fund in case unexpected expenses arise.
Lastly, be prepared with an emergency backup plan if unforeseen costs arise!
2. Develop a Good Relationship with Your Suppliers
As it’s true that having good client relations can save money and boost profits, having solid relations with suppliers is also crucial to avoiding costly errors such as slow production times and needing to reorder items, leading to increased inventory holding costs and inventory holding costs.
Establishing healthy supplier relationships requires open communication, respect, and fair dealings. Select suppliers who share your corporate worldview and branding vision – this will naturally build trust between you two, creating a fruitful working partnership.
Joining group purchasing organizations (GPO) can also give you leverage when negotiating discounts and cash flow management, providing more negotiating power with suppliers and decreasing overall costs. Joining can make a significant, impactful statement about cash flow management and cost reduction!
3. Know Your Break-Even Point
An understanding of your break-even point is integral for procurement. This calculation shows how many sales must occur to cover all fixed costs while turning a profit and making your venture sustainable.
Formula: Total Fixed Costs divided by Unit Selling Price less Variable Product Cost.
Break-even points can change depending on how many units have been sold and changing fixed costs, and so should be seen as estimates rather than fixed figures.
Asserting your break-even point can help you make better purchasing decisions, enhance financial planning, and provide you with a strong base from which to negotiate prices with suppliers. A break-even analysis will show you exactly how much profit is necessary per product to reach your target margin.
4. Know Your Inventory Needs
Under conditions of economic strain, it’s vital that businesses carefully consider inventory levels. Whether manufacturing your goods or acquiring them from distributors, ensuring you have enough inventory to meet sales demand without spending too much on storage costs is vital to remaining profitable.
Use the Economic Order Quantity (EOQ) formula to identify your optimal inventory quantity based on storage, ordering and shortage costs. This ensures you can continue production without running out of inventory and losing customers.
As part of your inventory audit, consider removing obsolete goods to free up cash for new purchases and reduce inventory costs. Furthermore, ask clients for deposits or partial payments upfront to improve cash turn-around and cash-flow management.
5. Have a Backup Plan
Environmental risk cannot be prevented from impacting your organization, but preparation is the key.
A backup plan will ensure your business can continue operating through any crisis – for instance, during the pandemic, many organizations were able to quickly source hand sanitizer locally from breweries and distilleries thanks to having a backup plan they could implement soon due to having one in place – saving both money and reducing stress in an already trying situation.