One of the keys to being successful in any business is the ability to properly manage the cash flow. Every business ultimately relies on cash to pay employees and suppliers in order to provide the goods and services to customers so that it can remain in business.
While it’s certainly possible for many businesses to access a line of credit to smooth out any fluctuations in cash flow so they can still acquire goods and services to provide their customers, this will only work to help a business to stay afloat in the short term.
Without a long term plan to properly manage cash flow so that employees, suppliers and even taxes and other fees are paid on time, a business will ultimately fail.
If you find that you are often robbing Peter to pay Paul in your business just to stay afloat, you might want to consider using the following strategies to better manage your cash flow.
Have a Plan
Make a realistic plan for your cash flow that is at least 12 to 16 weeks in advance. You may find that having a calendar with a forecast of all of your expected cash outflow and intake for several weeks will give you a better idea of how much cash you will have on hand during that time to pay suppliers, employees and others. If you see that you may have a shortfall during this period, you would then be able to possibly speak with suppliers and others to negotiate extended terms of repayment, or to make other plans if that is not possible.
Consider Opening a Line of Credit
If you find that there are time periods where your cash flow is not enough to cover operating costs, consider opening a line of credit, or having a credit card with a large enough available balance so that you have funds available to pay suppliers and others when you have a shortfall. While you might pay a bit more interest if you do have to tap the credit line, it is important to your reputation and the survival of your business to have a plan in place to cover operating costs to prevent late payments.
Open a Window if a Door Closes
If you find that you will have a cash flow shortfall during your planning stage, you aren’t able to negotiate other terms with a supplier and are not able to draw upon savings or a line of credit, it’s time to think outside the box in order to continue to make payments on time. Take a look at the hard assets of your business and consider selling those that are unused or under-performing. This can free up some cash so that you can make your payments on time.
With careful planning, even a sharp shortfall in cash flow can be dealt with so that the security of your business is preserved.