Your company's net worth is the sum of its assets minus its liabilities. Assets include the amount of money your company has in the bank, while liabilities are debts. By knowing your company's net worth and the amount of debt it has, you can work towards eliminating the debts, which improve cash flow.
Poor cash flow in a business means the expenses are greater than or close to the revenue it earns. To be successful, a company must have positive cash flow. While the techniques to improve cash flow in a business are simple, they do take planning, time, follow-through and persistence on your behalf.
Knowing Your Net Worth
Knowing Spending Patterns
Create a list of your company's earnings and expenses for the past three months. By examining this list, you may notice trends in frivolous spending, such as unnecessary business lunches or purchasing gourmet coffees when there are cheaper alternatives. By knowing how and where the company spends its money, you can find ways to cut expenses and improve cash flow.
Create a budget by using the list of your company's expenses to identify areas where the company needs to control spending. In the budget, include important fixed expenses such as rent and payroll, and set aside money to limit spending in other areas. For example, your budget could include a cap on office supplies, break room snacks or gas. With time, you will find that such changes in spending habits will improve the cash flow in a business.
Eliminating Credit Card Use
If your company pays its credit card bills in full each month, credit card use may not be an issue. However, your company's cash flow could be in trouble if the business pays only the minimum balance. By not paying a credit card bill in full, the company's debts begin to accumulate interest, making purchases more expensive than their original prices. By paying cash for items, your business prevents the buildup of damaging debt.
While downsizing is not an ideal situation for your company's employees, it may be a necessary solution to improving cash flow. In some instances, contracting workers when you need them may be more cost effective than hiring full- or part-time staff because they charge for only the time they spend working for you. Workers whom you can contract include receptionists, IT specialists, marketing consultants and copywriters.
Earning More Income
By gaining more business from current clients or by acquiring new business, you improve your business's cash flow. To gain more business from existing clients, tell them about new products or services the company offers. To get new business, an idea to consider is asking existing clients for referrals. Another way to earn higher revenues is to increase the cost of your goods and services.
Reviewing Insurance Policies
Incorrect information on a commercial insurance policy can increase the cost of the policy. Schedule an annual appointment with your commercial insurance agent to make sure that all the information about your company is correct and that you are receiving all the discounts available to you. In addition, notify your agent anytime there is a change in your company, such as the number of employees you hired, income or tax status.
Lowering the Accounts Receivable
Waiting for customer payments can tie up the cash your company needs. To help encourage early and on-time payments, you can offer a 2 percent discount to customers who pay you within 15 days of invoicing. Alternatively, you can examine the payment histories of your customers to see which take the longest to pay you or chronically make late payments and work out a payment plan with them to help improve your business's cash flow.
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