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The first step to understanding your role as a business owner is differentiating between personal and business finances. Mismanagement of your business funds will be why you have constant cash flow issues. And when you experience cash flow issues frequently, there’s a possibility that your business can go bankrupt.

Here are 5 ways to ensure that your business doesn’t get to that point.

Keep Track of Your Cash Flow

You can’t manage or increase your cash flow if you don’t keep track of it. As a business owner, you already engage in several activities that take up all your time. But your finances should be one of those things you look at regularly. Have a separate account solely for your business and take inventory of the money that comes and goes. That way, you will know the state of your finances and how to handle the situation.

Cut Costs

When you manage your financial state through proper documentation and regular checks, the next thing should be to cut your costs. At this point, you already know the areas of your business that requires you to spend a lot. For instance, if you spend more paying your full-time workers, you should look for tasks that you can outsource. You don’t need to employ full-time workers to execute all your tasks, as outsourcing would be more cost-effective. Similarly, if you spend more paying rent for your office space, consider the following questions. Can you work from home? Will adopting a virtual style affect your business negatively? Answering these questions will help you figure out what to do.

Manage Your Accounts Receivable

Your accounts receivable are the funds your clients owe to your business. With your financial records and costs under control, the next step is to re-negotiate payment terms with your clients. Setting up a defined payment plan for your business will help manage your accounts receivable and increase cash flow. You can ask your clients to pay for your services early and in milestones compared to bits. Giving them discounts when they pay earlier than they usually do is a way to increase cash flow. But you need to thoroughly confirm that your profits and sales won’t be affected if you do so.

Manage Your Accounts Payable

Accounts payable are the funds you owe to your vendors, suppliers and employees. And another way to increase the cash flow is to manage the account properly. One way to do that is to ask your vendors to extend your payment terms. In the same vein, you need to create invoices for all your debts according to urgency.

Take Stock of Your Inventory

One of the reasons your cash flow trickles in could be that you have goods you haven’t sold off. Purchasing more items without selling off the ones you’ve had can limit your cash flow. Rather than spend more money to buy goods that would be tied down, conduct a clearance sale for your old items.

There’s no way to know if your business is making profits until you keep track of your cash flow. And implementing the above steps and properly managing your finances will increase cash flow for your small business.

FARIDA YAHYA:

Farida Yahya is the Founder of Lumo Naturals, an Abuja-based natural haircare solutions brand that provides a combination of natural products, techniques, artistic styles and education about African hair and the importance of healthy and natural hair to natural hair owners. She is also the founder of The Brief Academy, a learning hub dedicated to developing and supporting female-owned startups to achieving wealth and scalability. Farida is also the author of Redefining Beautiful, a book that discusses the realities of starting a natural hair business. You can connect with Farida Yahya on Instagram via her personal page @thefaridayahya and her business pages @lumonaturals and @thebriefacademy.

 

 

Culled- BellaNaija

 

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