Note: This article is the second in a two-part series on achieving better cash flows for your business or nonprofit organization/association. See the first article here, which defines Cash Flow and why it’s important to understand, as well as how to do Cash Flow Projections.
How to Improve Cash Flows?
To manage your business or nonprofit organization’s cash flow better, look for opportunities to improve the timing of money going in and out of your operations. Let’s dive deeper into potential action steps to consider:
Faster Cash Inflows
Consider the following ideas to achieve better cash inflows:
• Faster payments from customers, clients and members – assess reasons for delays in payments, reimbursements and other balances due, and identify ways to achieve more efficient receipts, such as e-payments. Incentivize those who owe you to make prompt payments by charging penalties for late payments.
• Diversify your revenue streams so that you aren’t relying on just one source of income.
• Make sure your billings process is effective and efficient to avoid delays in invoicing and following up with late payers.
• Assess your payment terms for refinement opportunities.
Slower Cash Outflows
Slow down your cash outflows by considering the following:
• Delay big purchases when your anticipated cash inflows are low. Before deciding on big investments, take the time to assess whether the expense will add significant value to the practice.
• Consider obtaining a line of credit or short-term loan to spread the cost of big-ticket items over a period of time. Make sure you do your research to identify the best loan rates and terms. (For more info on Business Lines of Credit, see this Nav article at https://bit.ly/2K4M05j.)
• Determine whether it’s better to lease vs. buy assets.
• If you already have some short- and/or long-term loans, look for opportunities to consolidate your debt at a more attractive interest rate.
• Analyze your inventory turnover rates and avoid carrying too much inventory on the books.
• Identify your fixed costs and prioritize them.
• Look for ways to cut discretionary expenses.
As noted in last month’s article, it’s a good idea to first understand your current cash flows and project your future monthly cash flows, since that will give you some good insights as to where the opportunities may lie within your business/organization.
Understanding your cash flows and taking action to improve them will enable you to sustain unexpected challenges and help you to build a successful business/organization.
If you have questions and/or would like to understand more about Improving Your Cash Flow, please reach out to me, I’ll be happy to talk with you. Orin Schepps, Founder and CEO @consultanceaccounting https://www.consultancellc.com