In its 2022 report, the U.S. SBA noted that 1.1 million new establishments opened between March 2020 and March 2021. But, unfortunately, 965,995 U.S. firms also closed in the same period.
Poor cash flow management, in turn, is a chief reason behind business closures. After all, it can result in businesses lacking capital or running out of cash.
Fortunately, effective cash flow management methods can protect your business from such threats. We’ve listed the top ones below, so read on.
Monitor All Business Expenses
Business expense tracking is vital to managing cash flow since it tells you where all the money goes.
When you track and list all your business expenses, you’ll know how much you spend on what. You can also determine where you may be overspending or wasting financial resources. From there, you can implement cost-cutting strategies to minimize them.
Once you have a list of all business expenses, see which ones you can afford to reduce.
Labor is a perfect example, as it can account for as much as 70% of business expenses. It’s essential, but you can reduce it by outsourcing some of your operations. Through outsourcing, you can cut costs by paying only for the services you need.
You may also cut equipment costs by leasing some units instead of buying everything you need. Leasing comes with lower initial costs since you’ll just rent the equipment. The lessor, the company that owns the equipment, also handles maintenance expenses.
Secure Credit Early On
A previous study found firms that use debt in the first year of their operation are more likely to survive. They’re also more likely to achieve higher revenue three years from their start date.
Business debt can help because it grants you credit that you can use to expand your cash inflow.
For example, you can use a business line of credit (LOC) or loan to finance your operations. These include daily expenses, restocking or increasing inventory, managing payroll, or buying equipment.
Securing credit before you experience cash flow issues can also help you avoid a loan or LOC denial. But if you wait until after you face financial problems, your credit score may already have taken a hit.
Re-Evaluate Your Invoicing Model
If you bill clients annually, consider switching to a monthly invoicing model. This way, you don’t have to wait an entire year for payments to boost your cash flow. It may be better for your clients’ budgets, too, as it eases the burden of them having to make a huge lump sum payment.
Improve Cash Flow Management With These Tips
Without proper cash flow management, your business is at risk of running out of funds. And if that happens, your firm is more likely to face closure. Indeed, of over 110 surveyed startups that failed, 38% said it was because they ran out of cash or new capital.
So, as early as today, follow all our tips to get your business cash flow on the right track.
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