As most entrepreneurs have seen over the past two years with the global pandemic, crises can strike at any time, and you never know when cash flow can be hit hard. It doesn’t take a global event to create problems for a business either, with various factors including legal, accounting, financial, personnel, and product-related having a significant impact on bottom line and your working capital.
If you want to make sure your business can stay afloat for the long term, you need to make sure you’re taking care of working capital. You want to have enough cash to fund both day-to-day operations and future growth, with a decent difference between what your organization currently owes and what it has and cash on hand. There are plenty of ways to better manage your working capital this year and beyond.
Make as many quality forecasts as possible
You can’t improve what you don’t measure. As such, it’s wise to pay close attention to all of your business accounts and accounts payable and receivable, so you always have a good idea of your cash position and the bills you need to pay. It also pays to focus on quality forecasts.
When you have a clear picture of future cash flow, you can better plan working capital projects to pay down debt, meet short-term financing needs, spend money on capital expenditures, or invest in things that will help you grow the business. Technical tools can help with this.
Use comprehensive accounting and financial software, including specific working capital programs, to track the comings and goings of your accounts and invoices and generate cash forecast reports for you. Keep watching the numbers and forecasts to better predict potential shortfalls and do something about them well in advance to prevent big trouble from happening.
Renegotiate with suppliers
To improve your company’s working capital management, talk to your suppliers about getting better terms. See if you can open an account rather than paying for all goods upfront, or if you’re already using this setup, see if you can extend the payment term. You may be able to negotiate for 60 days of credit rather than 30 or 14, for example. Having more time alleviates some pressures on cash flow and can allow you to make more sales before having to pay suppliers.
Likewise, discuss with suppliers the possibilities of getting free or discounted shipping, offers on products if you purchase a particular dollar value of goods per period or place a certain number of orders, or additional items in premium for being a long-term customer. The less you have to pay, the more money you will have to invest in other areas.
Keep a close eye on inventory
Remember to keep a close eye on your business’ inventory levels. It is not enough to do one annual inventory and stop there. Instead, make sure inventory information is stored online on software that lets you see what you have on hand at all times. You also want to know how long it’s been on the shelf, how many items you’ve sold in each range, the top-selling or most-needed products in your business, etc.
Regularly print out a list of goods that have gathered dust so you can take action to push those goods into your store or put them in bundles or shrink them to get them moving. This will free up cash to buy items that are selling much better or to pay for other business expenses or growth strategies as needed.
These are just a few steps you can take to improve working capital this year. For additional steps in the right direction, pay your bills on time whenever possible to avoid continually having unpaid debts, damaging supplier relationships by being late, or even racking up service charges. interest on unpaid amounts. Plus, encourage customers to pay you sooner to get more money in your account.
Invoice people as soon as possible, send regular payment reminders once invoices are overdue (tech tools can automate this task for you), and offer plenty of payment options. You want customers to find the option they need right away so they don’t delay completing transactions. To ensure that you can always cover your expenses, you may also need to access loans or other loan assistance, such as invoice factoring services.
Every step you take in these areas can make a significant difference in your working capital processes and keep you in business much longer.