Cash Flow Management seems to be a topic that most people do not particularly like talking about, and it’s for a very valid reason. People don’t really like messing around with the different accounts and books that could become complicated really quick. That’s why a lot of business owners have their own trusted accountant to do the dirty number work for them. However, as annoying and stressful Cash Flow Management is, it is still an important aspect of the business that entrepreneurs should look into. It is a key area that some businesses do not do well with despite having abundant sales in their records. So how does one actually get good at managing books even as a non-accountant? PRISM.
PR stands for Payables and Receivables
Everyone is familiar with these two, payables are basically people you have to pay, and receivables are people who you’re collecting money from. One of the most common reasons why businesses have trouble with Cash Flow is that they are too eager to pay people, but are very slow in collecting their receivables. Some business owners think that collecting money from customers can jeopardise their relationship, and this is why some businesses with good sales can still have cash flow problems. If you have trouble making your collections faster or it makes you uncomfortable, the best thing you can do is to talk to your customer and maybe think of a way to incentivise them to pay faster. The extra incentive may even incline them to avail more of your product or service. In order to control your cash flow, you should also try to avoid paying too early unless there are certain incentives you are trying to avail. Holding payments at the last possible moment makes sure that your cash account would be loaded incase of any unforeseen expenses. And if you’re holding payments at the last moment and still having cash flow trouble, then maybe it is time to negotiate with your supplier for better payment terms, especially if you’ve been conducting business with them for a long time.
I is none other than Inventory
Many businesses have trouble managing their inventory because they either overstock or under stock. Some entrepreneurs overstock because they chase discounts but have trouble selling the products, while some under stock because they are afraid that they wouldn’t be able to sell the products. The easiest way to avoid these two is to identify fast moving and slow moving products in your inventory. Once identified, you can perhaps stock more of the fast moving products while you can be more disciplined in stocking slower moving products. Just make sure to always prepare sales strategies especially for your slow moving products so that they wouldn’t spend too much time sitting in your inventory.
SM is of course Sales and Marketing
Arguably the fun part of business, many have trouble here because they fail to recognise some costs or miscalculate certain goals / margins. It is crucial for every business to set the right sales goals that doesn’t just cover the variable cost and sit on the break even point, but also to hit your profit goals. Always factor in your profit goals so that you’ll cover it and not just break even every month. While setting up your goal, it is also important to look at your margins again and measure if your products are still profitable or not. Don’t be afraid to adjust your price if the margin is too small. Inflation itself can eat up your profit margin quickly, and if you don’t adjust accordingly, you’ll see yourself working hard for nothing. Always mind your pricing, it wouldn’t be a bad idea to increase prices in products / services that have more value to your market.
If you’re having Cash Flow problems, just always remember PRISM and you’ll be fine. In sum, always maximise payment terms, and promote faster collections so that your cash account will never run short again. Try to study your inventory closer to identify fast and slow moving products so you can budget your stocks better and prepare the necessary strategies to move your products more effectively. And always mind your pricing to make sure that you are getting the profit you deserve and that your business will stay so that it will keep on providing value to your customers.
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About the Author
Coach Felie is a business coach and experienced trainer, having a successful track record of growing companies across various industries by 100-500% within a year. With her firsthand experience working with companies and their leaders, Coach Felie transforms disengaged employees into fully engaged leaders that create long-lasting results. Having seen the troubles people experience as they try to start their own business, she has made it her mission in life to help others help themselves in growing and succeeding in their businesses.
