The holiday season is upon us, bringing with it well earned year-end parties and celebrations. Now is a good time to check your lists twice and reflect upon the cash flow management of your business for 2014. How did your business measure up against financial goals? What are the lessons learned going into the New Year?
Growing is an inevitable part of every successful business, and hopefully your business experienced growth in 2014. While you can be carefully managing your accounts receivable and inventory, rapid growth in sales leads to more investment in product which can severely drain your cash resources. Since it is cash flow that keeps your business afloat, it is worth revisiting the financial section of your business plan. Accurate sales forecasting and tight control of expenses will help keep cash flow in check.
How successfully was your cash flow cycle managed? Turning cash into inventories, selling, and then generating more accounts receivable, which generates more cash, is what kept your company afloat throughout the year. Were there ever periods where your cash flow suffered, or was interrupted for any reason? These are the times that can lead to stress over covering operating costs.
Experiencing success in the form of the amount of profit generated is one thing, but collecting that profit can be quite another issue. The most common reason for a cash flow crisis is allowing your customers long payment terms. Until the cash is accounted for, it is hard to create more inventory, or to pay your suppliers. Simply put, when your customers pay late, if you don’t have healthy cash flow management in place, you risk paying your bills late.
Consider some simple cash flow tips for 2015:
- Offer discount terms to encourage early payment from your customers
- Talk with your suppliers to see if you can arrange more favorable payment terms
- Manage your inventory so you are not holding more products than you need
- Check the credit of your customers before agreeing to supply products or services
- Shorten delivery times, thereby shortening the time between payments
- Consider alternative forms of financing to close the cash flow gap
So take time to celebrate all your various successes, and appreciate your staff for their hard work. Go into the year ahead with plans to adopt the most effective payment solution, both in terms of paying your bills on time, and collecting on invoices in the most efficient manner possible, and give your company a stronger ability for success in 2015!