While you might be aware of how to slash costs and get paid faster, what about cash flow? Managing cash is undoubtedly an inevitable problem. It can be a challenge for even the most seasoned business owners. Therefore, there is no doubt that understanding and managing cash inflows and outflows is crucial to a company’s financial stability. The complexity of the cash flow problem stems from the misconception that positive cash flow – when more cash comes in than goes out – generates profit. Extra cash in the bank means the company has enough cash, right? Not always. There may be money in the bank, but some of it is probably going towards salaries, rent, bills and so on, which means that this money is not a net profit. If you don’t make the necessary payments, the cash flow can be negative. When more money leaves the organization than comes in, positive and negative cash flow affect all businesses. There is no way around it. However, there are strategies to manage cash flow to maximize profitability. Here are some intelligent ways to do it.
#1. Create a Cash Flow Forecast
It’s important to forecast your company’s cash flow. That helps reduce uncertainty by anticipating ups and downs in cash flow and reflects business cycles. If you ever have a low or negative cash balance, you could be in trouble. Be careful when making predictions. Start with the amount of cash in hand. Then list the expected payments for each month, such as salaries, profits, rent, marketing, inventory purchases, loan repayments, tax obligations, new equipment purchases, etc. Then list the expected income for each month, such as customer payments, investment income and grants. Finally, deduct the costs from each month’s that income. To improve cash flow, review your spending plan and, if necessary, break down large purchases into smaller parts. Then compare your actual cash flow with your forecast.
#2. Reduce Overheads
Evaluate your current overhead costs and see where you can reduce them. Try to use your money efficiently and reduce waste. What expenses can you do without? When renewing insurance, etc., look around for the best rates and don’t renew without researching them first. Strategies may also include tax cuts, managing employee overtime, and better management and compliance. If possible, negotiate with suppliers to get a better price or contract—budget for estimating and controlling costs.
#3 Inventory Management
Regular inventory checks save money and time. Establish and maintain optimal inventory levels. Too much inventory can lead to extra storage costs, possible destruction and loss of money. Too little stock can lead to lost sales and business interruption. To maximize cash flow, try to implement a system for ordering inventory on time.
#4 Debt Management
Good debt management eliminates bad debts, ensures healthy cash flow and helps you get payments faster. It also enables you to maintain strong customer relationships. Debt management strategies include:
- Setting credit limits
- Invoicing before or immediately after services are rendered
- Short payment terms
- Collecting interest on late payments
- Offering small discounts for early or partial payment, and
- Checking the creditworthiness of customers.
Ensure your terms are clearly stated in all contracts and invoices to customers, and make it easy for them to pay using electronic payment options.
#5 Raise Pricing
Many businesses are afraid to raise prices because they fear it will lead to lower sales. Prices should be reviewed annually. Experiment with different prices until you find the perfect amount. How much are customers willing to pay? You can’t know unless you take the chance to change. When introducing price increases, keep an eye on your key performance indicators to see what effect the price changes will have on your business.
Need help with business and cash management in the surgical field? Schedule a free consultation with the experts at Anaesthetic & Medical Billing Services. They’ll work with you to develop an action plan to improve your company’s bottom line.