5 Ways to Boost Your Cash Flow During the Festive Season
As many small businesses gear up for the festive season, it’s crucial to keep your cash position in check. We all know how cash flow problems can become a rollercoaster ride during the holidays!
A healthy cash flow means there is a good balance between money moving in and out of your business. Having a positive cash flow can ensure your business’s success for the year ahead.
To learn more ways to boost your cash flow during the holidays, check out this quick read.
Incentivise Paying Early and Discourage Late Payments
One way to increase cash flow is to encourage customers to make prompt payments. For an early payment, consider offering discounts or small perks.
You can also offer the same benefit to those who pay early via a lump sum.
Conversely, you can implement late payment fees for those who miss their due dates. As a late payment penalty means an additional expense, most customers will want to avoid these. This method can help you get your invoices paid sooner.
In case you have a special or large job order, request an initial payment, and follow up on progress payments throughout your service.
To be effective, you can also be proactive and communicate these payment terms to your customers. Regularly remind them of their outstanding payments and debt. Only provide extended payment terms when necessary.
Providing customers with a variety of payment options encourages prompt payment too. Consider accepting electronic payments through credit card and direct deposit, or consider invoice financing.
Improve Your Marketing Strategy
Aside from encouraging early payments, another way to improve your cash flow is by honing your marketing and reaching sales targets. The right marketing strategies will help you attract more customers and boost sales.
In this time and age, online marketing is the key to success. Keep your business’s website and social media accounts up to date.
Additionally, consider tailoring your marketing content with the holiday season. In a timely fashion, offer themed discounts and special promotions. These efforts can go a long way.
Limit Any Unnecessary Spending
It’s easy to get carried away with expenses during the festive season. But as a small business owner, exercise restraint!
To improve your cash flow and secure your bank account balances are positive, cut back on unnecessary overheads and keep a close eye on expenses such as office supplies, travel, and entertainment.
Closely monitoring your capital expenditure helps boost your cash flow too. Review your balance sheet on your financial statements to find what assets your business owns.
If you can convert certain assets to cash, this can greatly help your cash flow improve.
Likewise, conduct an audit of your inventory. Take note of which goods are moving quickly and which ones are not. You don’t want to be paying suppliers for dead stock.
Be more mindful of buying these in the future. Take advantage of the holiday spirit and sell these at a discount so they move faster.
Create a Cash Flow Forecast
Another way to improve cash flow management is to conduct cash flow forecasting and cash flow analysis. When you prepare a cash flow forecast, you study your profit margins alongside your future income against your expected cash outflows.
Consider analysing your previous year’s performance to conduct accurate cash flow projections. This information determines whether you’ll have more money or not.
As a business owner, you can use this data to boost marketing efforts, hire the right amount of staff, and apply for a business loan if necessary.
Monitor Your Businesses’ Operating Expenses
To avoid a negative cash flow, keep an eye on how much cash is paid to monthly bills, salaries, and other regular outgoings. Likewise, ensure unpaid invoices and accounts receivables are followed up to add to the cash inflow against the outflow from operating expenses.
Many business owners disregard checking cash flow statements, especially when accounting software does all the work. However, it’s important to be aware of all business processes, including managing cash flow, so you can anticipate potential cash flow shortfalls and adjust your financial strategies accordingly.
Anticipate Growth and Increase Prices
People typically spend more during the festive season, which means the demand for your product or service will likely increase. Raising your prices slightly can be a strategic move.
Increasing your prices can help boost your cash flow. Just be transparent with your customers about any price adjustments and ensure they understand the value they’re receiving.
More Tips to Boost Your Cash Flow
Aside from the different ways to boost your cash flow mentioned above, here are some more practices to consider.
Open a High-interest Savings Account
If you often put away cash in your business bank accounts, consider high-interest savings accounts for saving cash. This way, you can save money with the best interest rates banks can offer.
Use a Business Credit Card Or Line of Credit
Using a business credit card rather than paying in cash means you can make a purchase today and pay for it in the next month. This can help you boost your cash flow and allocate it elsewhere.
However, banks only offer a credit limit based on your creditworthiness. So you may want to pay before the due date to avoid penalties and a poor credit score.
Alternatively, you could also consider applying for a Business Line of Credit. This is a flexible form of business funding giving you access to a pre-approved amount that you can withdraw from as needed. But instead of paying interest on the full amount like with a traditional business loan, you’ll only need to pay interest on what you actually borrow. This type of business funding can also help build up your credit history by making your repayments on time.
Lease Your Equipment
Leasing equipment means you don’t have to pay a ton of cash upfront or try to sell outdated equipment every time you upgrade. This can lessen your cash flow burden in the short term and even qualify you for tax credits.
Frequently Asked Questions
Now that we’ve discussed how to boost your cash flow, learn more info about money matters here.
How Is Cash Flow Different From Profit?
Cash flow refers to the actual movement of money in and out of a business. It represents the revenue earned during a business’s day-to-day operations, as well as the expenses paid to operate. The cash flow statement paints an accurate picture of a company’s liquidity.
Profit, on the other hand, represents the amount of money your small business has earned after deducting expenses, including taxes, interest, and other non-cash items like depreciation. Profit measures a company’s overall financial performance, as recorded on the income statement.
What’s the Biggest Cause of Poor Cash Flow?
Common causes of poor cash flow include delayed payments from customers, excessive overhead costs, inefficient inventory management, unexpected expenses, and overtrading (expanding business operations too quickly without adequate cash reserves).
Conclusion
Managing your business’s cash flow effectively can be a common and recurrent challenge. So make sure to consider our tips that are relevant to you and your business on an ongoing basis and not just the holidays.
By encouraging your customers to make early payments, improving your marketing efforts, and monitoring every business expense, you might be able to navigate your cash flow to brace through the busy festive season.
