You likely don't need me to tell you that the more cash you've got in your business…
...the healthier it is
...the more likely it is to survive seasonal sales dips, unexpected events, etc.
...the greater ability you have to invest in its growth.
If the events of this year have you struggling to maintain steady cash flow in your business, I've got some info that may be helpful.
Here are My 4 Tips for Improving Your Cash Flow:
1. Make Sure Your Products are Profitable
This may seem like a no-brainer, but many businesses are selling products that have little to no profitability and it’s causing the overall business profitability to suffer. With limited or no business profitability there is no cash to flow in your business!
2. Speed up the rate at which your revenue turns into cash (Accounts Receivable)
Direct to Consumer (DTC) brands have a quick sales -> cash rate. Customers are either handing over cash at the time of purchase, or a 3rd party payment processor is depositing it in your account in just a few days.
Wholesalers and Manufacturers don’t have it so easy, and can have terms as long as net-60!
Exploring options for paid-in-full discounts or 50/50 payment discounts may help you turn your sales into cash more quickly. Just be sure you know how the discount incentive will affect your overall profitability.
3. Slow down the rate at which cash leaves your business (Accounts Payable)
When was the last time you requested a change to your payment terms?
Many new and small businesses are required to pay COD, or are given short net-10 or net-15 terms when they’re just getting started, but after consistent on-time payments you are eligible to request them.
If you’re working with a new vendor make sure you are clear on your starting terms and when you can request an extension of terms - then make those on-time payments, set that calendar reminder, and follow up for longer terms!
4. Look Ahead with Financial Projections
Financial Forecasting is beneficial for LOTS of reasons. One of them is seeing and understanding how your cash flow will change over the next 6-12 months based on seasonal sales trends. From there you can make cash spending vs. cash saving decisions today that will prevent you from being cash-strapped when sales slow down.
Having a long-term cash flow projection is also helpful when unforeseen events happen in your business, or on the planet, as they did this year. In just a few clicks you can see exactly how long your cash will last, how much you will need to rely on credit, or how much your small biz loan request should be for.
Wishing you all the positive cash flow!
About the Author: Sarah Delevan is a Food Business Financial Coach and Consultant with over 7 years of working in the food industry. She received her MBA from Rollins College and In 2017 she founded Sarah Delevan Consulting based in Los Angeles, CA and serving clients across the United States. She is the creator of the Financial Success Formula and the founder of the Profitable Food Business program. To learn more about Sarah and opportunities to grow a more profitable food business Click Here.