As any business owner knows, good cashflow is essential to the smooth running of a business. Every company needs to have good cashflow in order to be successful – but maintaining good cashflow can be a difficult task. In this article, we outline a few strategies you can use to maintain good cashflow, and how you can break the negative cycle of negative cashflow.
What is cashflow?
The term cashflow describes the state of a company’s funds. It simply means having enough funds to operate normally and successfully. The opposite of good cashflow is when a company doesn’t have enough funds to keep the business running as per usual — a ticking time bomb. Bad cashflow restricts your ability to pay your employees, order inventory, and everything else required for your business to operate normally.
How do you run into bad cashflow?
Unfortunately, there are a lot of factors that can negatively affect your cashflow. Everything, from the economy to excess stock and poor business decisions, can impact the amount of cash a company has.
How can you improve cashflow?
Managing your cashflow effectively is not simply about ensuring you’re managing enough sales — it also requires managing your expenditure. Business owners and inventory managers need to pay careful attention to inventory costs, as companies can run into trouble from spending unnecessarily.
One of the ways inventory managers can manage expenditure is by taking more care when ordering more stock. Many companies run into financial trouble by simply over-ordering inventory and finding themselves unable to sell all of it. This is what is known as excess or obsolete stock.
Inventory managers can improve their stock orders by using inventory software to more accurately track sales patterns and demand and use this data to re-order only what has a reasonable chance of being sold in future.
Another simple way is to ensure all invoices are sent out as soon as possible, and not left until the last minute. This is an easy and effective way to make sure that cash comes back into the business with ease to keep things ticking over.
Relatedly, business owners ought to ensure that any unpaid invoices are being proactively chased, no matter how big or small. In business, every little bit counts, especially if you are already struggling. It is good practice to be proactive with invoicing and follow up with clients or customers who have not yet paid in full.
Another strategy for injecting more cash into the business is to offer customers bundles of products for a discounted rate. For example, you could reduce the price of a certain item if four or more are bought in one purchase. This can also help if you’re struggling to offset the costs of excess stock, as mentioned earlier.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. When not writing about inventory management, you can find her eating her way through Auckland.