Running a successful business is a juggling act between cash coming in and cash going out. If you’ve built up a cash reserve, you’ll be better able stay in business and handle short-term issues like falling sales.
Businesses generally fail because they run out of cash. Cash in the bank acts as a buffer and can help you better weather the ups and downs you may encounter when running your business. Having cash in reserve:
Buying in bulk and having unsold stock is cash you can’t use. To preserve your cash and avoid getting it tied up in stock, try:
The per unit savings associated with larger orders can be tempting, but always be aware of the impact on your cash position.
Inspecting the credit history of customers before you extend credit terms is an important step in minimizing the chances of having cash tied up in debtors.
Excellent debtor management can be achieved by:
Is your business loan the right one for your needs? It can be easy to forget about your loan as you concentrate on the day-to-day running of your business. However, with volatile markets and banks continuously competing for business, it would be wise to keep in close contact with your bank manager to take advantage of any loan restructuring opportunities.
Look at ways you can cut costs in your overheads, obviously not to the detriment of your business, but do shop around to see if you can get a better deal. Take a look at your:
It's almost inevitable that over time as your business grows and changes, you’ll have some assets that aren’t put to full use like they used to be. Perhaps you have idle printers that aren’t really used anymore, a company vehicle that’s past its use-by date, or aging computer equipment.
Now's the time to scrutinize your business for assets that aren’t really being used – and to sell them. Make a conscious effort to cash in on clutter.
You could consider setting up an automatic payment that adds to your cash reserve each month. Or even take a tiny percentage of your sales each month to help build a buffer. Either way, set your business a cash reserve target for the end of the year and try to stick to it.
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