The amount of money a company earns relative to what it spends will directly influence its level of success. Known as cash flow, it’s used to measure the financial health of companies. If a company spends more money than what is earns, it has negative cash flow. This issue, of course, is troubling because companies need cash to pay for expenses like inventory and payroll. However, there are steps business owners can take to improve their company’s cash flow.
Set the right price
Setting the right price is essential to generating sales and creating positive cash flow. If a product or service’s price is too high, potential customers may look for a cheaper solution. If the price is too low, the company may struggle to turn a profit. Business owners must find a delicate balance that attracts customers while still creating a positive return on investment (ROI) for their company.
Check customers’ credit
If a company allows its customers to pay after their product has been delivered or service has been performed, it should check the customer’s credit beforehand. According to a report by Sage, approximately 10 percent of all invoices are written off as bad debt. To reduce the frequency of nonpayment, business owners should only allow post-delivery payments from customers with good credit.
Purchase inventory in bulk
Business owners should contact their suppliers to inquire about bulk purchase discounts. Many suppliers offer steep discounts on bulk purchases. A business owner may save his or her company 10 percent to 20 percent, for example, when purchasing 1,500 units at once instead of a single unit.
Transfer excess funds to a savings account
Rather than allowing their company’s excess funds to sit in a checking account, business owners should transfer that money to a savings account. Most banks, especially online banks, offer interest on business savings account. Typically less than 1 percent, it’s not much, but that interest still helps to improve a company’s cash flow.
Consider leasing equipment
Purchasing new equipment can be expensive, but there are other ways for companies to acquire them. A business owner can lease equipment, for instance. This agreement allows the owner’s company to use the equipment without necessarily owning it. Leasing is cheaper than buying, and it usually includes no-charge maintenance and repairs.
To ensure their company’s long-term survival, business owners should focus on lowering their expenses and increasing their revenue. As their company’s cash flow improves, they’ll be able to weather the bad months while staying ahead of their competitors.