Cash is the critical lifeline of every company that keeps everything functioning. Even with high profits, a company can’t survive without cash flow. In fact, many “profitable” businesses were forced to declare bankruptcy because incoming cash couldn’t counter what was leaving. By exercising good cash management, CFOs will be able to help their company invest and compete in the market place.
Of all new businesses founded, only 31 percent are expected to survive for at least 7 years. The number one reason that new business endeavors go under is because of poor cash flow management. CFOs of both small and large businesses can implement the following seven tips to increase cash flow in the company.
- Reorganize the billing schedule. The quicker the turnover rate is for billing, the more capital there is on hand to spend on investments and growing the business. A good rule of thumb is to bill early and often.
- Improve relationships. While CFOs are the “economic advisor” of a company, they rarely do everything. Various activities such as cutting checks, creating invoicing, approving spending, signing off on a project, and much more are handled by several hands internally and externally. CFOs who have strong relationships with all of these decision makers and money handlers can better control the cash flow.
- Regulate credit requirements. Businesses that regularly extend credit to consumers are putting themselves at risk. By tightening credit requirements, CFOs are stabilizing and preventing potential losses.
- Use innovative discounts. Discounts affect the profit margin, but can help cash flow when used effectively. CFOs should consider offering discounts if consumers pay early. This takes advantage of cash flow by incentivizing the payment process for consumers. Just be sure the incentive doesn’t negate the profit margin!
- Leverage online banking. By using online banking, CFOs can check on cash and payment statuses anywhere and in real-time. The real-time component allows CFOs to make decisions more quickly and effectively.
- Tighten inventory. Overstocking inventory presents two immediate pitfalls: First, it ties up a large amount of cash. Second, most companies aren’t aware whether their inventory turns are within industry norms. Slow turnover ratio could mean that it isn’t being used elsewhere.
- Be proactive. Project management, accounts payable and receivable, payroll, and much more could benefit from increased cash flow. CFOs serious about driving company growth should do everything possible to “punch early and punch often.” By being proactive and increasing turnover rates, CFOs are injecting more blood (cash) into the lifeline of their company.