Cash management can make or break a company. Poor cash management may lead you into debt to meet your immediate obligations, limiting your ability to pay other bills in the future. Here are six ways to improve cash management in your company, all of which are within reach of organisations of any size. None of these methods for improving cash management are expensive to implement.
1. Know Your Break-Even Point
You cannot become consistently profitable unless you know your business’ breakeven point. A major reason to calculate this number is to understand all your ongoing expenses and, if the breakeven point is too high, know what you can cut. You should calculate this number along with income, expenses, and taxes so that you can proactively address costs that are creeping up.
2. Collect Receivables As Soon As Possible
Too many businesses end up financially crunched because they’ve delivered goods and services but have not yet received payment. You may end up paying interest on loans to meet immediate financial needs because your customers are using you as a short-term lender since they don’t have to pay you for weeks after delivery. Keep net 30 and net 60 contracts to a minimum, and give customers incentives to pay immediately for goods and products.
3. Establish Policies & Procedures To Control & Conserve Cash
Set strict rules for giving refunds and if you can, don’t give refunds in cash. This reduces fraudulent returns and conserves cash on hand.
4. Adopt An ePOS System
A point of sale system (or ePOS) automatically tracks all incoming payments and inventory changes as it processes someone’s payment for your product or service. For service businesses, ePOS makes it easy for a customer to tip and for the organisation to properly record tips. One available system by Vend HQ enables digital payment collection and data recording to reduce errors while speeding up operations. Vend ePOS, for example, will record any and every change to the cash float, so nothing will go unnoticed and you can ensure everything has been recorded when it comes to closing the register at the end of the day.
5. Have Cash Reserves
Maintain cash reserves. You will have bad months for sales and you will be hit by surprise expenses like major repairs. If you have cash reserves, you can use these savings to pay those bills instead of going into debt to settle unplanned costs. If you have profits, put this money into cash reserves first before you grow the business.
6. Increase Sales Through Incentives
Many businesses pay for major marketing efforts in the hope of increasing sales or they deeply discount their products to see a major increase in sales, though this may hurt profits and alter customer price expectations. The better choice is to use incentives that don’t cost a lot. For instance, you could sponsor a contest and give away a well-advertised set of products or swag; the items themselves don’t have to cost a lot while the giveaway will result in significant social media commentary.
Coupon codes are another great idea, but you have to use them judiciously. For instance, you can email someone a coupon to entice them to buy from you again when they haven’t done so for a while. The coupon code doesn’t cost you anything when sent via email and it may bring back a repeat customer for a fraction of the price of recruiting a new one.
All of these measures are easy to implement and should improve your business’s cash flow in the long term. So, what are you waiting for? Go give them a try!