How To Manage Business Cash Flow | Company

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There’s a reason why the phrase “Cash is King” is the motto of so many business owners. Profits without cash can be meaningless, as evidenced by the number of profitable companies that have filed for bankruptcy. This is why managing a company’s cash flow is so important. Defined more simply as the movement of cash (and cash equivalents) in and out of your business, cash flow is essentially a matter of timing. The lag between paying suppliers and employees and collecting from customers is where companies can run into trouble. While a healthy cash flow can create value for a business, a poorly managed cash flow can leave business owners scrambling for more cash. If you want to generate value and avoid problems, consider these seven cash flow management strategies.

1. Regularly measure your cash flow

While you can gain a lot of information by analyzing your business’ profit and loss statements, these financial records may not accurately capture cash flow throughout your business operations. That’s why many businesses also regularly generate and review cash flow statements, which allow them to see the cash in their business’s operating, investing, and financing activities. Positive cash flow occurs when cash in is greater than cash out, and negative cash flow occurs when cash in is less than cash out. With this data, you can also calculate the cash flow ratio, a measure of how many times your business pays off its debt with the cash generated during the same period. Getting familiar with these metrics can help you better understand which areas of your business operations are working well and which need corrective action.

2. Be strategic in paying your bills

One habit that can be a surefire way to drain money from your business is to pay bills all at once or as soon as you receive them. It can benefit your company’s cash flow to be strategic with your cash outflow by spreading out your payments. Be sure to read the terms of your creditors so you have a clear picture of all your debts. Organize your accounts payable by priority and map all your company’s payment deadlines. During this process, you may wonder if your pay cycle is working with your income stream. While wage and hour laws dictate some of this, you may have some leeway to free up more cash to keep on hand for when your business might use it the most.

3. Negotiate payment terms with suppliers

Low prices are an attractive quality when deciding which companies to do business with, but you might not want that to be the only factor you consider. Choosing suppliers with flexible payment terms can help make the difference between whether or not your business has enough cash. If your current or potential supplier has a payment plan that is out of sync with your company’s current cash cycle, contact a company representative to see if the terms can be negotiated. Once you start the conversation, you and your supplier may even end up finding a solution that benefits both of your businesses.

4. Collect your debts faster

Getting the billing under control can be an effective way to shorten the time between when your business registers revenue and when the money arrives in your business bank accounts. Submit invoices as soon as work is completed or goods or services have been received. Consider encouraging your customers to pay faster by offering a discount for early payments. Quickly follow up on late payments and keep a close eye on customers who regularly pay late. If you have repeat offenders, consider changing that customer’s payment terms to require a deposit or impose a cash on delivery policy.

5. Take advantage of the credit

Sooner or later, you will probably come across a situation where your business is running out of cash to pay the bills. Even the most seasoned business owners face unexpected shortfalls. Knowing that this can happen, it’s a good idea to have a plan. This is where a business credit card or business line of credit can be a valuable resource. Maintaining access to credit is a smart way to build a “cash cushion” in your business plan.

6. Use technology to make and accept payments

Depending on the type of business you have, processing payments online is a way to expedite the delivery of cash to your business bank accounts and reconcile outstanding balances for cash outflow. This should be considered when evaluating vendors, but also when determining payment options for your customers. There are several point-of-sale solutions for credit card processing, many of which have developed plans with small businesses in mind. If you have face-to-face interactions with customers, consider equipping your employees with smartphones or tablets that support mobile apps to collect payments on the spot, regardless of where the transactions take place. This can become a huge plus if your business works with deliveries or runs a pop-up store.

7. Look For Ways To Move Inventory

If your business involves working with products, your inventory is essentially the same as cash. Since you can’t collect this money until you sell the inventory, you may want to explore tactics to expedite the sale of existing inventory. Increasing marketing efforts, encouraging pre-orders and changing prices – especially by reducing old inventory – can be effective ways to move products. Along the same lines, it may also be worth reassessing your inventory forecasting and replenishment strategies to make sure they match the reality of your business’s business.

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For Informational/Educational Purposes Only: The opinions expressed in this article may differ from those of other JPMorgan Chase & Co. employees and departments. The opinions and strategies described may not be appropriate for everyone and may not are not intended to constitute specific advice/recommendations for any individual. . The information has been obtained from sources believed to be reliable, but JPMorgan Chase & Co. or its affiliates and/or subsidiaries do not warrant its completeness or accuracy. You should carefully consider your needs and goals before making any decisions and consult with the appropriate professional(s). Prospects and past performance are not indicative of future results.

JPMorgan Chase Bank, NA Member FDIC. ©2022 JPMorgan Chase & Co.

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