It’s no secret that most business’ cash flow has taken a downturn in the last 12 months. If you own of the 6 million SMEs in the UK and you’re looking at ways to improve your cash flow, we’ve got some tips to help you get back on the road to recovery.
What is cash flow and why it’s important?
Cash flow is the money that is moving (flowing) in and out of your business in a month. Lack of cash is one of the biggest reasons small businesses fail. It’s also called “running out of money,” and it will shut you down faster than anything else.
The first six months of a business are a crucial time period for cash flow. If you don’t have enough cash to carry you through this time, your chances for success aren’t good. Suppliers often won’t give credit to new businesses, and your customers may want to pay on credit, giving you a “cash crunch” to deal with.
Even profitable companies can experience cash flow problems when their debts are due before they’ve collected enough money from sales to cover their bills. So it’s important to gain control of your cash flow and understand when money is coming in and going out, as well as implementing new policies to help improve your business’ cash flow
Lease, don’t buy
Since leasing supplies, equipment, and property usually ends up being more expensive than buying, doing so may seem counterintuitive to someone who is only paying attention to the bottom line, or your income after business expenses are paid off. But unless your company is flush with cash, you’re going to want to maintain a cash stream for day-to-day operations.
By leasing, you pay in small increments, which helps improve cash flow. An added bonus is that lease payments are a business expense, and thereby can be written off on your taxes.
Consider a loan
Another option to increase cashflow is to consider taking out a business loan. Asset-based loans are a great option if you’re looking to increase your cash flow long-term. ABLs are where the amount the lender agrees to lend depends on the value of specific assets that the borrow owns at the time rather than the borrower’s cash flow. Asset-based loans are often structured as revolving loans.
Cash flow lending on the other hand, focuses on the borrower’s historical and predicted cash flow to make decisions about whether and how much to make available to the borrower.
At a time when brand loyalty is scarce encouraging customers to stay loyal is imperative for a business’ success. Encourage loyal customers by offering discounts or implementing rewards programs and encouraging multiple purchases to earn points that open new and exclusive discounts. Also, consider implementing a referral program. This way you can encourage your loyal customers to grow your business for you through word of mouth.