Like all ambitious entrepreneurs who want to make their mark in the marketplace, you are aware that a positive cash flow position is critical to the success of your business. Having adequate cash resources at your disposal makes it easier for you to carry out your organization’s daily activities effectively and efficiently. Moreover, you are in a better position as a proprietor to prepare and implement a feasible budget with the view to for the future growth of establishment. However, in reality, there are times when you face a severe cash crunch where you find it difficult to pay your suppliers, employees and meet overhead expenses.
Tup Ingram – Effective ways to improve your organization’s cash flow position
Tup Ingram is a prominent plastic surgeon holding a Medicinae Doctor (M.D.) degree from Baton Rouge, Louisiana. He specializes in the field of reconstructive surgery and owns a clinic in Nashville. He points out the following 4 effective ways enterprising entrepreneurs should adopt to improve their organizations’ cash flow position:
- Prepare a cash-flow budget
From the onset, you should prepare a cash-flow budget of your organization’s inflows and outflows. First, you need to a comprehensive list of payments have to incur in the course of operating your establishment. This includes payments to suppliers, payroll, necessary overhead expenses, taxes, purchase of equipment and loan repayments. Next, you have to make a list of areas where your organizations earn money. This could include cash sales, payments from clients, income from investments and income-tax refunds. Subtracting the cash outflows from the inflows gives you an idea of the amount of money you have at their disposal.
- Formulate an effective payment policy
The next step is to set-up and implements an effective payment policy for your organization with the help of a proficient financial expert. Endeavor to keep the terms of credit you offer your clients as short as possible and indicate the same in the sales invoices you issue them. You should accept various modes of payment from your clients to enable them to pay the amount they owe you in the course of conducting your business. You can also offer them attractive discounts for making prompt payments.
- Managing payables
You need to enter into negotiations with your suppliers to offer you a credit period of 30 to 90 days repay the amount you owe them. This should give you enough time to issues invoices to your clients for the sales you make, collect the money from them and pay your vendors.
- Managing Inventory
It is essential for you to review the amount of stock you keep in your premises at any point of time. This will give you an idea of the cost-benefit ratio holding such inventory. You should keep in mind that keeping low-selling inventory in your organization for too long increases your insurance and carrying costs. This leads to cash deficits.
Tup Ingram says implementing the above 4 factors can go a long way to improving your organization’s cash flow position. In addition to this, you should also review your organization’s overhead costs and find ways to keep such expenses with the acceptable level. You should negotiate with your bankers to offer you a ‘line of credit’ to deal with the worst-case cashflow situations.