and inventory optimization
Became a retail mastermind you always wanted to be.
Became a retail mastermind you always wanted to be.
By: Jul Domingo
Cash flow is what’s pumping life into your business.
It’s the sum of all the money coming in and going out of your company, showing you how much cash your business has (or doesn’t have).
But sometimes, the pump can malfunction due to a blockage.
When this happens to an actual pump, you clear the blockage by adding pressure or reducing resistance. In cash flow, it means finding strategies to increase cash inflow or decrease outgoing cash.
Before we dive into ways to improve cash flow, let’s discuss the issues associated with it first.
Cash flow determines whether a business will survive. Without sufficient cash on hand, you’ll have to find other ways to pay your employees, suppliers, materials, loans, rent, and inventory.
SMEs are at risk of cash flow problems because of:
Several methods exist to improve your cash flow, each designed to solve the cash flow problems outlined above. We sorted them into five categories:
Improving cash flow begins with making it as easy as possible for you to see and understand. Here’s how cash flow management analysis can help you understand your financial situation, recognize patterns, and adjust accordingly:
A cash flow forecast involves estimating future sales and expenses to know whether you have enough cash to run your business. It gives you a leg up on not getting caught with negative cash flow.
Here’s how to improve cash flow forecast:
Pro Tip: Automating cash flow forecasting is highly recommended. Not only does it reduce the possibility of human error, it also saves you time.
Online and mobile access to your accounts can give you a better picture of your cash flow and allow you to resolve issues in real-time.
Set up email, push, or text notifications for any changes in your business bank account. You can limit your expenses by setting up alarms to notify you if your account balance drops below or purchases exceed a certain threshold.
When you record and track finances, you can avert financial crises. Keeping an eye on your investments also allows you to discover which strategies have a positive impact. Make sure you use programs with Power Business Intelligence to gather data from numerous systems and provide dashboards for monitoring key business metrics.
Another way to improve cash flow effectively is to keep track of the comings and goings of your finances. Here’s how staying on top of your inbound and outbound payments can help maximize the amount of money you have on hand:
Many SMEs in business-to-consumer industries get paid before delivering their goods to their customers. But there are businesses, such as those selling in bulk, that rely on the good ol’ invoice.
If you’re one of them—and your invoicing process isn’t as smooth as possible—it can impact your cash flow. “We always take steps to get paid faster. For example, we make use of invoice financing to avoid late payments and bad debts,’’ says Austin Fain, owner of Perfect Steel Solutions which caters to the home improvement industry.
Here’s how to improve cash flow in manufacturing, distribution, and wholesale:
Today’s customers value convenience above all else. In fact, a study by National Retail Federated indicated that inconveniences caused 97% of shoppers to back out of a purchase. only accepting 3 C’s–cash, check, and credit card–will have your customers scurrying to your competitors (especially if you’re an e-commerce owner.)
Consider adding Paypal, bank transfers, and other digital wallets to your payment roster. Make in-store contactless payment available too–it’s a must to cater to 80% of shoppers who use it.
You can also encourage customers to purchase luxury products or make big purchases, offer a no-interest payment plan or a buy now, pay later option. Millennial and Gen-Z shoppers appreciate how these methods allow them to buy products that would otherwise be out of reach.
Regardless of the type or size of your business, you have the option to enhance payment processing so that your customers can pay you whenever, however, they want.
The notion of paying your bills as soon as you receive them makes you a responsible person, but this isn’t always the best practice for some business owners. The sooner you pay, the less cash you have at your disposal.
But if you pay your bills closer to when they’re due, you can free up your cash for as long as possible. To avoid missing out on payments (and incurring late fees), lean into automation so you can schedule transactions in advance, including employee salaries.
Setting up future payments helps control and improve cash flow so that you have more time to focus on other business-related activities.
Diversifying your funding sources is one of the best ways to build a healthy cash flow right away. Not only that, but it will also help you deal with economic downturns and other causes of business fluctuations. Here are ways to improve cash flow with a little bit of financial help:
Cash reserves serve as a backup during financial emergencies. It may have been challenging to set one up when you were just starting. But now that you’ve gained momentum in your business, you should get started.
Build up a cash reserve by saving a certain amount every month. At the very least, aim for three months of expenditures. In the event of unexpectedly closing your business (such as the COVID-19 pandemic), you expect no revenue, so your calculation should reflect that.
A business credit card provides a credit line for purchases and cash withdrawals. It gives financial security in times of slow sales, unpaid balances, and cash shortages.
Banks usually charge high-interest rates for this cushion. As a result, you should not misuse it. Remember that late payments can harm your credit score and incur fees, so paying on time is key to improving your cash flow with credit cards.
A business credit card can help you build credit, which will help you qualify for other, less expensive forms of financial assistance, such as credit loans.
Most business owners (56%) use loans to acquire assets, invest in new opportunities, or expand their business. By doing so, they avoid depleting their cash reserves and personal savings.
Taking out a bank loan is a sensible move. But qualifying for one isn’t easy. For instance, you need to be in business for at least a year to get approved. Banks may also request proof of your good reputation and growth potential. This is where most small businesses fall short, with 36% getting their loan requests turned down.
At Inventoro, we believe everyone should be able to get financing because it hinders growth for SMEs. We can predict future sales of our clients with high accuracy based on historical data, providing lenders with a glimpse into the future.
We work with Flowpay.io, an online lender that provides fast and bank-free financing. They can present our clients with a direct offer in just one click. Once our clients accept, they’ll receive the cash within 24 hours. Read more about our ground-breaking partnership with FlowPay here.
You can increase significant savings that can influence a positive cash flow by lowering your expenses. Here’s how to improve cash flow by focusing on the essentials and making adjustments:
Your operating costs represent the most significant part of your expenses. So if you want to create a positive cash flow, reducing them might be a good start.
What can you reduce without compromising your business? First, pore over your recurring monthly, quarterly, or yearly expenses and find out which ones your business can live without. For instance, you could free up your warehouse or even downsize it by reducing inventory and only stocking up on your best-performing items, or at the very least, stop buying products that don’t sell.
Other ideas to reduce your operational costs include:
For a business to grow, you’ll need to invest in top-of-the-line equipment and technology. But new tools also mean massive upfront payments and expensive ongoing maintenance costs.
If you want to focus on creating a more positive cash flow, you might want to lease equipment at first. By doing so, you reduce the strain of upfront payments and make your expenses a bit more predictable to manage your cash flow better.
But leasing only helps you turn your cash flow around. Ultimately, it isn’t the best long-term solution because it tends to be more expensive over time. Consider buying reconditioned pieces of machinery. If you source from a reputable supplier, you’ll see how refurbished equipment can be as good as new.
Pro Tip: This approach extends to making a software investment. Some platforms lend themselves better to monthly subscriptions (cloud-based) than one-time business investments (on-premise).
You can keep cash within your organization and use it in ways that directly benefit your bottom line by extending your payable schedule.
One of the quickest ways to accomplish this is to sit down with your suppliers and examine the terms to see where you can make changes. For example, you can extend their payment terms to coincide with your cash flow or request lower prices in exchange for a longer partnership.
Another way to do this is to leverage your sales forecast. For instance, Inventory customers can anticipate product performance up to two years in advance, and they use this information to renegotiate their contracts. Suppliers will be more willing to adjust their terms if they know you intend to do business with them in the long run.
Renegotiating with your suppliers is better than looking for new ones. You already know the quality of their materials and the speed with which they deliver. If you sub them with lower-quality suppliers to improve cash flow, you risk damaging your brand.
Sometimes the kinks are in your business plan. You lose money when you waste time on repetitive tasks or miss out on opportunities. Here’s how to improve cash flow from operations:
By identifying long and complex processes, you can find ways to automate them. In previous sections, we discussed how you could automate your cash monitoring processes by setting up notifications or relying on software programs such as Inventoro to deal with sales and inventory forecasting.
Analyze your systems and find loopholes that you can turn around. For example, repurposing leftover materials to create new products. A good example of a company that does this well is the sustainable clothing company Grant Blvd. They use up their deadstock and scrap fabrics to make new items. This not only cuts costs but also helps the environment.
Another company that shows how identifying loopholes can work in your favor is The Critter Depot. According to owner Jeff Neal, this helps them find out that “partnering with other farms nearer to our customers can help us fulfill orders while maintaining lower shipping costs.”
Fear is the number one reason business owners are afraid to raise their prices. One concern is that it will drive customers away. But 53% of shoppers consider quality more important than price (only 37%) when making purchases. Consider this your signal to adjust your pricing to improve cash flow.
You can also drive up efforts with proper marketing strategies and build buzz around higher-priced products. If you’re running an eCommerce store, encourage customers to sign up for a waitlist and pre-order new items. Their upfront payments are guaranteed to give your cash flow a boost.
Many people hold onto their product in hopes of selling it, but unproductive inventory impacts your cash flow in multiple ways. It takes up space in your warehouse, lowers your profits, and ties up your cash, further draining your cash flow.
“Inventory has an immediate impact on cash flow due to operational changes. If we tend to use more resources and workforce, it decreases automatically due to our spending, or vice versa,” says Martin Seely, founder of Mattress Next Day.
Identify your slow-moving items and stop investing in them. We’ve listed some tips on how to get rid of your deadstock here. It’s also beneficial to invest in a software platform for inventory forecasting and replenishment, such as Inventoro. In addition to helping you segment your products, we create inventory recommendations that guide you to invest only in products that merit a place in your warehouse.
No matter what stage your business is at, improving your cash flow remains relevant. Get your cash flow under control by following these 14 steps.
Became a retail mastermind you always wanted to be.