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Posted: 2006-09-05 / Author: Trevor Marshall

Improving Small Businesses Cash Flow

Improving Small Businesses Cash Flow: Operating a business enterprise can be fulfilling both emotionally and financially. Of course, it can also be very demanding especially if the business is just starting out or is experiencing cash flow problems.

1. Manage Wisely

A person operating his own business should devote full time in managing the business if he wants to recoup his investments and make a decent profit. A hands-on manner in managing the business is often preferred especially for small to medium enterprises.

2. Cash Flow Is Everything

The cash flow of a business enterprise refers to the income of the business plus the corresponding expenses. In simple terms, the cash flow of a business shows if the business is indeed making money or is losing. By determining the cash flow of a business, the entrepreneur is able to determine if the business is operating by itself, that means it can pay the business expenses out of the money it has in its coffers.

A negative cash flow will mean the business is not able to operate on its own and there is a need to look for additional financial support every month. When this happens, it is best to take a closer look at what is wrong in the business operations to avoid further loses.

3. Determine Your Flow

To determine the business cash flow, the owner should take note of the monthly expenses of the business and see where the payment for these expenses will be coming from. If the income of the business is able to support and pay the business expenditures then there is a good or positive cash flow. Otherwise, the business may be in trouble and may be in need of serious evaluation.

4. Manage Funds Strategically

So how can an entrepreneur improve the cash flow of his business? A positive cash flow will require a strategic cash management. This means the entrepreneur should seek strategic means to improve the inflow of income and decrease the amount of business expenses. This means increasing the profit margin of the business as compared to the income and the expenses it incurs.

5. Price Products Intelligently

One of the best ways to improve cash flow is to increase the price of the products or services being sold by the business. Of course, this solution is not always easy since it will affect the patronage of customers who are always on the lookout for price increases.

If the product being sold is considered efficient and very useful by the customers then increasing its price will not really be a problem because they will always see the cost effectiveness of buying the said products. Most customers may be concerned about prices but they are more critical when it comes to product quality.

6. Maintain Quality

To maintain the viability of the products and increase sales, the entrepreneur should maintain the quality of his goods or services. Among the products that do not really experience a problem despite price increases are products that are already considered the best in its category, products for niche markets and products that are always in demand and are being produced only by a few manufacturers.

When choosing this strategy, the entrepreneur should make an analysis of the possible effect of the price increase in the volume of sales. The price of a certain product can likewise be increased without getting the ire of the customers by introducing improved features.

7. Minimize Expendatures

Another way to improve the business cash flow is to minimize expenses especially the cost for maintaining the business. By choosing useful business machines, the business can be more productive at lesser labor cost. The entrepreneur can also opt to outsource business functions that are not really regularly needed by the business or that are less expensive when outsourced rather than when the business takes it on its own.

The bulk of overhead expenses are related to labor cost so the entrepreneur should make a staff evaluation to determine that positions can be performed efficiently by a single person and determine if positions are no longer required entirely.

8. Have A Professional Billing System

A business experiencing negative cash flow should review uncollected income or as there may be credits that are already overdue. The entrepreneur should enforce an efficient collection strategy to turn the debts owed to the business into cash. The business may be experiencing a negative cash flow because of its failure to convert checks or debts into cash.

About The Author: For more great cash flow related articles and resources check out http://weknowcashflow.info


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