Cash flow is especially important to the success of your small business. With more complex financial instruments available, the need for cash liquidity has not changed. You need to increase the amount of cash you have in-hand to pay your employees, utilities and suppliers.
Time is Money
Here are 3 tactics for improving cash flow in your small business:
Increase the amount of money you hold for a longer time.
Banks understand the time parameter of money in charging interest on the principle of your loan. Mortgage values are based on the future value of money over the life time of the loan. Likewise, you must understand the difference in the value of money to your small business today and money in 30 days.
Larger corporations withhold payment of salaries for management until the beginning of every month. This permits the business to make money off the interest by holding onto the money for longer.
Work with your suppliers to determine if there are payment options that allow you to hold more cash for longer. These could include more just-in-time electronic payment methods.
A variety of payment options is useful in the modern environment. Take advantage of all of the financial repayment methods available. Some financial transactions can be completed within hours. Other financial payment systems might take a week to complete. You don’t need a masters in finance to realize at different times, different payment methods make more sense.
Develop a cash-rich product line.
Some large corporations have merged with cash-rich firms just to get access to this liquidity. In the modern environment, cash in your pocket is worth a little bit more. Many individuals, businesses and governments are struggling with high debt levels. Benefit from their cash deficiencies.
Due to the value of cash on-hand, you might change your product line to offer more affordable goods and services. A lower price will facilitate a faster repayment schedule. There is no need for a paper check or plastic credit card when your prices are lower.
A grocery store has many cheap goods, like pop and candy, at the checkout line. These are impulse purchases. Combining these emotional product lines with a more complex merchandise mix will ensure you have petty cash for small purchases.
Offer discounts on immediate payments.
Society is becoming more attuned and addicted to sales. Every one wants a deal. Some clothing stores make sales their primary business plan. People want to feel like they received an extra benefit from buying from you. They feel like you care when you give them a discount.
If you offer discounts for immediate payment, you can benefit in the long run. You will have more cash in hand. This money is more valuable today than in some remote future.
Inflation is increasing. Money is more valuable today when inflation is high. Small businesses will find that other entrepreneurs, like dentists and doctors, also give discounts to those who pay their bills immediately.
The customer receives a discount. The small business gets cash immediately. Everyone wins in this situation.