As an entrepreneur, one of the key factors that keep a business running is liquid cash sometimes referred to as operating capital. When a business has cash flow, then it means that it will always be in a position to pay suppliers, meet payroll and pay for other expenses that come with running the business.
However, many business owners sometimes go without cash inflow into the business. This is always often regarded as a sign of financial challenges for the business. The main reason why businesses get into this position is due to a lack of better methods to conserve cash flow. Conserving cash flow is where a business works to retain its cash position and maximize every available dollar without misusing any single cent.
Conserving cash flow in a business is not something as easy as you think? If you think so, then tell us why many entrepreneurs fail? This means that cash conservation is something that business owners should learn. Can a business increase cash flow and maximize profits at the same time? Yes, here are the key steps for doing so.
1. Make Delayed Payments
Many businesses deal with vendors who supply the business with goods and services. As an entrepreneur, it's essential to ensure that cash flow in the business is maintained at a specific level for running the business. If you have vendors that you have established a good working relationship with, try to negotiate a lengthy repayment period with them so that the cash can be put back into the business.
Doing so acts as a double-edged sword in that you make profits while at the same time keeping your business debt free. Who wouldn't you want to do that in today's harsh economy? As an entrepreneur, take this tip and put it into use.
2. Lease Equipment
If you are in need of any equipment, you would rather lease it from a company instead of buying a new one especially if you need it temporarily. This is a measure meant to conserve cash since obviously leasing is far cheaper compared to going for new equipment. Sometimes a business needs the owner to go for the most effective and cost-effective way when it comes to acquiring equipment.
Therefore, it is advisable to lease most of the equipment that your business is in need of as opposed to spending lots of cash by buying new equipment. This is a very good strategy to conserve your company's cash. If the products are sold, it means that more profits would be made since the costs of leasing equipment is more cost effective.
3. Exchange Goods and Services
Instead of paying for everything that is supplied to the business using cash, it would be a wise idea for every entrepreneur to try and exchange products for products. Look out for vendors who are also in need of certain products and supply the products to them in exchange of products that you lack to run your business smoothly.
This is a good way for any type of business to conserve cash and retain cash inflow. By exchanging products for other products( barter trade), it means that you will be able to conserve cash in the business.
4. Buy Used Equipment
Before purchasing any new equipment, it is good to do some research on whether you can get the same machine which has been used but it is still in good condition. There are so many companies that have assets ready for disposal. Keep a close lookout for advertisements selling machinery that have been used from local auctioneers. Buying used machinery is much cheaper compared to purchasing new ones, which is a better way to save cash.
The aim of any business is to maximize profits and one of the ways to improve the bottom line is by reducing its expenses. If you cut on expenses, the cash outflow will be minimized and if the cash inflow is maintained or increased, then the business will definitely maximize its profit potential.
5. Always Repair Capital Equipment
Instead of buying new equipment every now and then, it is good to invest in the current ones that you have. You need to have a regular maintenance program for all machinery that the business currently has. This will go a very long way in minimizing unnecessary costs that would otherwise have been incurred by the business by buying new equipment every time.
Get a professional equipment mechanic or technician with the necessary qualifications and experience to work on your equipment. This will ensure that all your machines are in good operating condition always. This is very vital because it will prevent you from having mechanical breakdowns often. The money that would otherwise be used to buy new machines will, therefore, be conserved and maximize the profits for the business in the long term.
6. Cut Down on Employees
One of the major factors that could really drown your cash flow is by having too many employees in your business. Instead of employing new individuals whenever the business expands, it is advisable to utilize the potential that the current employees have to their maximum potential. Before you hire a new employee into the business, it would be great to weigh both the pros and cons of taking such an action.
If the benefits of hiring a new employee outweigh the salary burden, then you may go ahead and hire one but if the reverse is true, then hold off for now to avoid financial constraints and reducing cash flow into the business.
7. Keep the Business Lean
As a business owner, it is good to resist the temptation to buy new equipment or hire additional employees so as to conserve cash flow for the business. Before adding any extra expenses, it is good to weigh both the pros and cons. If the pros lead the race, then go for it but if not, stop that decision and work with what you have. This will help you retain cash flow in the business.
We all know that maintaining steady cash flow in any business is very difficult. However, with the above steps, you will be able to improve your company's bottom line and the overall success of the business.