3 Tips For Quickly Increasing Cash Flow
Obviously increasing cash flow in your business is extremely important. Without enough cash flow, you’re going to have problems. The businesses that generally run into cash flow issues are those that require significant amounts of inventory. For example, the service industry very rarely tends to have a cash flow problem other than collections.
Come to think of it, let’s talk about collections because that is the first way you can start increasing cash flow.
Are You Taking Care of Collections?
We are fortunate in 2012 to have credit cards so easily accessible; therefore, there is no reason why your customers should be using you as a bank.
You need to establish the rules of payment early on and then enforce those rules.
There was an instance where a client of mine was upset that our Accounts Receivable contacted them after 45 days, even though our contract says it needs to be paid within 30 days.
With credit cards and other means of paying for things, it is not necessary and should not be acceptable for your clients to use you as a bank. If there is any issue with the details of payment, they need to be exposed early and addressed so that both parties are comfortable with the terms.
Negotiate Payment Terms With Your Suppliers
If you’ve got a cash flow issue then you need to review and manage your payables because that is where your cash flows out.
If your business cycle takes 120 days to recover from your cash flow cycle (with your customers), and that’s the amount of time you require to have comfortable payment terms, then it’s important for you to negotiate those terms accordingly. Your suppliers have the option to accept it or not.
When it comes time to pay, you need to pay on the agreed terms. Find out if those terms are going to work for you before you agree and negotiate on terms with your suppliers that will help you with increasing cash flow.
Do Not Use GST/HST Tax Money For Cash Flow!
You cannot under any circumstances use money set aside for GST/HST or payroll tax for your business cash flow. It’s imperative that you understand that money is not yours. I have seen so many businesses file for bankruptcy because they used their money owing to CRA (Canada Revenue Agency) for cash flow. Whatever you do… don’t do it! You, as the director, are liable for these amounts should your company not be able to pay them.
Understanding how the cash flows in and out of your business is extremely important and coming up with projections will help you see how your cash is actually flowing.
It’s one thing to make money in business. It’s another thing to understand how the cash flows. Those are two different statements you need to understand. When you’re working with your Kelowna accountant or professional advisor, make sure you understand how the cash flows in your business and not just if you are profitable or not.
About the Author
Ken Davidson is a Chartered Accountant with BDO Canada LLP, with their Kelowna accounting firm. Ken specializes in helping Kelowna businesses that are in start-up mode, companies in Kelowna that are in their growth phase and are ready to take their revenues to the next level, and professionals to secure their financial future with solid investment advice. Ken is best known for his strategic planning advice that positions him as a trusted advisor above and beyond being a Kelowna accountant that gives typical tax planning advice. To contact Ken for a Strategic Business Review to learn how he may be able to help your Kelowna business, email him at firstname.lastname@example.org.
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