Question

If management is being evaluated on their ability to manage a budget, what can they do to increase cash flow?

Answer 1

The ways to increase cash flow are..

1. Check your expenses

Many businesses tend to focus more on the money coming in. Their error here is not realizing how much flows through the back door. Sometimes businesses are faced with big important spending projects. These include hiring, inventory, equipment, location and technology. Unexpected expenses like equipment repair and replacement can crunch cash flow in businesses. Increasing cash flow requires you to pay attention to all your expenses. You must have a rigorous process that tracks all your expenses periodically. This would equally help you to quantify your returns on all investment expenditures. In the long run, you’ll be able to make wise spending decisions that will increase cash flow.

2. Optimize Your Pricing

One useful key to maximizing cash flow is optimizing the price of your products and services. Is it possible that you are selling your products for too little or for more? Your sales may suffer if your price increase is extreme. That’s just one possibility; increase in the perceived value of your product is another possibility. Often times businesses tend to offer discounts as a quick fix to generate more cash flows. It may seem effective from the onset but would have long term effects. You have to find that mid-point that can boost your cash flow without losses in sales.

3. Give Your Customers Reasons To Pay Early

Positive cash flows come from increased revenues and fewer expenses. Late payments for goods and services tend to tie down cash. You should have a definite time-frame within which payments must be made. You can decide to give your clients small discounts for early payments. Late payments should be equally punishable. Send out reminders for overdue payments so clients can pay up. The reminder should state that fees will be charged for late payment. This will encourage customers to pay early in order to reduce costs and avoid payment increase. You, on the other hand, will have more cash for the business.

4. Inventory control

Bad stock management can lead to additional costs and cause cash flow problems. Holding too much stock in your inventory ties up your cash. This includes the initial cost of the stock and the ongoing costs of holding and maintenance. This cash could have been invested in other areas. Purchasing inventory stock generates a cash outflow. When inventory stock decreases, it is seen as cash inflow. Bad inventory control is a situation where you are buying more inventory than you’re selling. Proper control will improve your inventory turnover and reduce the cost of goods sold. The end result is a positive impact on cash flow.

5. Improve Your Marketing Strategies

Any step that can make your business improve will definitely increase cash flow. Marketing is particularly one of such steps. Positive cash flows come from increased revenues and fewer expenses. However, marketing must be focused on target customers. This is to help reduce marketing expenses. It makes no sense to spend more especially when you are trying to increase your revenue. Generate attractive content that will improve the patronage of your product. Current customers must be valued and treated as such. Respond to every phone call and enquiries so that people are interested in patronizing your business.