Managing cash flow is a challenging but it’s an important element of running a business successfully.
“Businesses that fail early often do so because of cash flow shortages, not because they were not profitable business ideas,” says Sarah Adams, vice-president of small business at RBC.
Adams encourages you to keep these tips in mind to avoid a cash flow shortfall:
- Make sure customers pay you before the date you need to pay suppliers.
- Negotiate supplier discounts to help reduce costs.
- Offer customers an incentive to pay early and follow up closely on overdue payments.
- Offer credit only to your best customers.
- Ask your customers for deposits on large sales.
- Keep track of your operating expenses like supplies, utilities and lease payments.
- Make sure you accurately track your inventory by identifying which items are staying on the shelf and for how long. This helps in making timely turnover decisions and in managing the carrying costs.
- Set prices that will cover your costs and generate a profit.
- Obtain a loan or a lease to help finance large capital purchases, such as equipment. You will then use only a small amount of your cash monthly rather than all of it at once.
Knowing the drivers that impact cash flow will help to minimize cash concerns before they happen.
Additional business advice is available at www.rbcroyalbank.com/business/.
www.newscanada.com
