Proper cash flow management is a key strategy that every business owner must master for long-term financial success. Managing cash flow can be one of the biggest challenges business owners face.
A recent study from Intuit found that 61% of small businesses around the world struggle with cash flow. Nearly one-third of those surveyed are unable to either pay vendors, pay pending loans, or pay themselves or their employees due to cash flow issues.
To combat this struggle and stabilize cash flow, there are many tactics you can incorporate into your business model. The first step is to determine the cash flow your business needs.
Jay Singer, senior vice president for small business at Mastercard, said this is done by analyzing the current state of your business.
“It’s important to understand how much cash you’ve been using and plan to use, as well as the length of time it will take to acquire more cash,” Singer told Business News Daily. “While every business’s needs are different, it would be wise to have enough cash on hand to cover up to six months of your average cash outflow.”
An important element of your business model that can help with cash analysis is having proper accounting standards in place. While businesses can run on a cash or accrual basis, Rohit Arora, CEO of Biz2Credit, advises every business to take advantage of both.
Here are some tips from the experts on how to manage your cash flow.
1. Borrow money before you need it.
The best time to solve a cash flow problem is before it happens. If your business is running smoothly or is in the beginning stages of production, now is the time to borrow money. By opening a business line of credit when your numbers are good, you can avoid the risk of rejection later on. This will also provide you with resources to fall back on, should you experience the growing pains associated with starting a business. Arora said a business line of credit can be a lifeline for small businesses, particularly those impacted by seasonality.
“Whatever amount you think you will need, ask for double; you might not get it, but it’s better to have reserves to draw from when times get tough,” he said. “If you can get a small business loan at 10% or less, your cost of capital will be so much lower than if you put purchases on credit cards that carry rates of 19% or more.”
For businesses that have already been consumed with high-interest credit card debt, Arora recommends refinancing. For example, if you made several purchases on credit cards that come at interest rates of 20% or more, consider getting a business line of credit that might be available for as low as 6% or 7% interest.
If you have yet to open any credit cards and are struggling for a loan, Singer suggests getting a small business credit card with an interest-free grace period to support your short-term financing needs. He said credit cards can highlight opportunities to save, and many even come with innovative reporting options that illustrate spending trends to help business owners optimize their cash flow.
Read more: https://www.businessnewsdaily.com/15017-cash-flow-strategies.html