Here are some of our best tips on how to improve cash flow for your small business in Canada.
Cash flow is the lifeblood of any business, large or small. It determines how much cash a company has at any given moment and its ability to meet its financial obligations as they come due. A healthy cash flow enables a business to invest in new opportunities and respond to changing market conditions. Bad cash flow can have disastrous consequences for all types of businesses.
Small businesses are especially prone to negative cash flow because they generally have smaller operating budgets than larger corporations and need to place an upfront investment in fixed assets and inventory.
If you’re a small-business owner or operator, you must understand the risks of poor cash flow and do everything possible to mitigate the potential effects. Here are our best tips on how to improve cash flow for your small business in Canada.
Check your cash-flow forecast regularly
One of the most important things you can do to improve cash flow is to regularly track your business’s cash flow. First, keep a close eye on your accounts receivable and accounts payable to ensure you collect the money you are owed and pay your bills on time. Then, make adjustments to get your business’s cash flow back on track.
You must establish a cash-flow forecast and keep track of your actual results for as long as you own your business. This will help you make adjustments as necessary to avoid a cash-flow crisis and make better strategic plans for your future. Keep your eye on your receivables – especially any larger bills that must be paid in 30 or 60 days.
If you’re having trouble collecting payments on outstanding bills, you may want to consider hiring a collections agent. These professionals can be very effective at getting money that is owed to you. However, you will have to pay them a percentage of what they collect, so it’s essential to pick a reputable collection agency with a good track record.
Expand sales market
Another way to improve cash flow is to expand your sales market. Look for new opportunities to sell your products or services and expand into new markets. For example, if you sell auto parts online, you might want to open a retail store. This will allow you to collect cash at the point of sale and reduce your payable while expanding your customer base.
Another option is to offer financing or installment payments for your product or services. This allows you to collect multiple customer payments over an extended period. Ensure that you have the capital and resources to take on new customers. Don’t overextend yourself by taking on more business than you can handle. This can lead to cash flow problems and management issues.
Set a price floor for all of your products
Another way to improve cash flow is by setting a price floor for all of the products that you sell. This can help you reduce the amount of money you have to pay in sales, inventory, and accounts receivable. However, you shouldn’t use this method for your customers’ essential items. Instead, you can set a price floor for non-essential items, such as luxury items or seasonal products. Again, this will help you increase your profit margins and reduce the amount of money you have to pay out in accounts payable.
When setting a price floor, keep in mind that you may be able to sell fewer items than you did before. This can hurt your sales volume and cash flow. So make sure you set the price floor high enough to cover your costs with a little wiggle room fully. And remember that you can always change it in the future if the market conditions warrant it.
Shop for better rates with your current suppliers
Another way to improve cash flow is to shop around for better rates with your current suppliers. This can help you reduce the amount of money you have to pay for inventory and supplies. However, it’s essential that you don’t stretch yourself financially by agreeing to terms that are too favourable to the supplier.
You should shop around for a couple of different suppliers, but be careful not to sign multiple contracts. This could violate the terms of your existing contracts, and you could end up in hot water with your current suppliers. If you’re shopping for new suppliers, ensure you are ready to enter into a legally binding contract. Make sure you read and understand the terms of each contract before you sign on the dotted line.
Liquidate old inventory
Another way to improve cash flow is to liquidate your old inventory. You will probably want to do this carefully, though, so that you don’t damage your reputation with customers.
- Clearance sales
- Creative bundling
- Reduce warehouse space and expense
- Suffuse the market
- Increase interest in new models
Reduce your warehouse space and turn old inventory into immediate cash-flow with a few clearance sales. You can also use creative bundling to make other products more appealing at a mark-up while also clearing the shelves of unsold products. Use the marked down prices as an incentive to increase the number of households (or businesses) using your product and market to the lower price range. Consider selling through discount platforms or listing coupon codes where people look for deals.
Ensure you understand the risks of poor cash flow and do everything possible to mitigate the potential effects. You must track your cash flow regularly and make adjustments as necessary to avoid a cash-flow crisis. You can also expand your sales market, set a price floor for your products, and shop for better rates with your current suppliers. Finally, you can also liquidate old inventory to improve your cash flow.
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IDM Accounting is passionate about supporting those in need through their financial success journey. We allow individuals and businesses the opportunity to focus on what’s important to them, while we worry about your financial health.
When you’re ready to take the next steps, consider a free financial health check! Contact IDM accounting to get started.