As most entrepreneurs have seen over the last couple of years with the global pandemic, crises can hit at any time, and you never know when cashflow can take a big hit. It doesn’t take a world event to create issues for a business, either, with various factors, including legal, accounting, financial, staffing, and product-based ones, having a significant impact on the bottom line and your working capital.
If you want to ensure your venture can stay afloat for the long term, you need to ensure that you take charge of working capital. You want to have sufficient cashflow available to fund both daily operations and future growth, with a decent difference between what your organization currently owes and what it owns and the cash it has on hand. There are numerous ways to manage your working capital better this year and onwards.
Do as Much Quality Forecasting as You Can
You can’t improve what you don’t measure. As such, it’s wise to pay close attention to all your business accounts and accounts payable and receivable, so you always have a good idea of your cashflow position and what bills you have coming up to pay. It’s also beneficial to focus on quality forecasting.
When you have a clear picture of future cash flows, you can better plan working capital projects to pay down debt, meet short-term funding requirements, outlay money on capital expenditure, or invest in things that will help you grow the business. Tech tools can help with this.
Use comprehensive accounting and financial software, including specific working capital programs, to keep track of the comings and goings of your accounts and invoices and generate cashflow forecasting reports for you. Keep looking at the numbers and forecasts so you can better predict potential shortfalls and do something about them well in advance to avoid big problems occurring.
Renegotiate with Suppliers
To boost working capital management in your business, talk to your suppliers about getting better terms. See if you can go onto an account rather than paying for all goods upfront, or if you’re already utilizing this setup, see if you can extend how long you get to pay. You might be able to negotiate to have 60 days’ credit rather than 30 or 14, for example. Having more time alleviates some cashflow pressure and can enable you to make more sales before you have to pay vendors.
Similarly, talk to suppliers about the possibilities of getting free or discounted shipping, deals on products if you buy a particular dollar value of goods per period or make a certain number of orders, or extra items as bonuses for being a long-term customer. The less you have to pay for, the more cash you’ll have available to invest in other areas.
Keep a Close Eye on Inventory
Don’t forget to keep a close eye on your firm’s inventory levels. It’s not enough to do a single annual stocktake and leave it at that. Instead, make sure you have inventory information stored online on software programs that enable you to see what you have on hand at any time. You also want to know as long as it has been sitting on the shelf, how many items you’ve sold from every range, the best-selling or most needed products in your business, etc.
Regularly print out a list of those goods that have been collecting dust so you can take steps to push those products in your store or put them into package deals or discount them down to get them moving. This will free up cashflow to buy items that do sell much better or to pay for other business expenses or growth strategies as needed.
These are just some of the steps you can take to improve working capital this year. For additional steps in the right direction, pay bills on time wherever possible so you don’t continually have outstanding debts, damage supplier relationships by being tardy, or even accumulate interest expenses on unpaid amounts. Plus, encourage customers to pay you sooner to get more cash coming into your account.
Invoice people ASAP, send out regular payment reminders once bills are past due (tech tools can automate this task for you), and provide plenty of payment options. You want clients to find the option they need right away so they don’t put off finalizing transactions. To ensure you can always cover your expenses, you may also need to access loans or other lending aids, such as invoice factoring services.
Every step you take in such areas can make a significant difference in your working capital processes and keep you in business for much longer.