There are many different elements you have to take charge of and handle efficiently when running a business, including sales and marketing processes, customer service, human resources, and finance.
When it comes to the latter, it’s vital to ensure working capital management is top of mind so you can pay bills, keep the doors open long-term, and continue to grow the venture. There are multiple ways to be as effective as possible in this area.
One way to improve working capital management is to reduce inventory levels. If you have a lot of cash continually tied up in stock that’s just sitting there doing nothing, it’s hard for your business to thrive. Utilize tech tools to analyze your different inventory lines to understand what sells well and what doesn’t.
Take the items that haven’t been popular or that are now outdated or damaged and reduce them in price to get some cash coming back in the door and also make room in your warehouse for more of the goods that do sell well. You might even decide to offer some of the old stock as bonus gifts or bundle them up in packages to both please customers and reduce inventory levels.
Invoice More Quickly and Encourage Speedy Payments
Your cashflow will always struggle if you don’t get payments coming in from customers quickly enough. Do yourself a favor and get into the habit of invoicing as soon as possible after completing work or selling goods on account to your clients. The sooner people get their bills, the sooner they can pay them, after all.
Ensure invoices have the total amount due and the due date, plus the payment details in an easy-to-find spot in large print, so no one misses the information. Also, use accounting or specific invoicing software to automate follow-up reminders to customers when accounts become overdue.
Another way to manage working capital better is to focus on quality forecasting. When you have a clear idea of likely future sales and costs, you can better plan how to meet any cash flow issues and make operational and spending decisions, in particular, with such plans in mind.
Software programs can help you pick up on patterns in your business over the years and determine likely projections as a result. Having a good idea of what’s to come, as much as possible anyway, will make it easier for you to know when to hold off on capital expenditures, pay down debt, save for lean times, focus on business growth, bring on new staff, and more.
Sometimes, though, you’re going to have to turn to external sources to fund shortfalls in cashflow during specific periods. For instance, retailers who have their busiest periods during the festive season or cyber Monday, etc., may need to gain access to short-term loans to increase working capabilities and maximize sales.
Always research financing options and check the fine print before signing on any dotted lines. Don’t borrow more than you truly need and have all your paperwork in order (including tax returns, profit and loss statements, balance sheets, updated business plans, etc.) ready for lenders to look over.
Remember that you don’t have to go to your current bank or the closest one, either. These days there are many different alternative financing organizations, including online-only financial institutions that can offer competitive rates due to the savings they make by not having brick-and-mortar storefronts.
Manage Supplier and Vendor Relationships Well
Many firms have regular suppliers or other vendors they deal with throughout the year who are integral to business operations. To maximize cashflow and minimize issues for working capital management, focus on effectively managing the relationships you have with these people and companies.
Be polite and professional at all times and train your team to do the same. Pay bills on time and communicate well so that other parties always know where things are at and what you need. Plus, don’t be afraid to negotiate better rates and terms. You may be able to enjoy cheaper pricing, discounted or free shipping, shorter lead times for deliveries, or other favorable terms if you ask for them.
Other ways to kick goals regarding working capital management include setting and keeping track of key performance indicators (KPIs), centralizing procurement processes, and utilizing technology to save time and money throughout the year. Be proactive to get a handle on this area of your business, and it’s much more likely to be around for the long term.