When managing any business or retail store, having an adequate cash flow is essential. Many times, this is key to the survival and flourishing of a business. A cash crunch can result in a multitude of problems, including delay in paying your suppliers, increased cost of materials, delay in rolling out salaries to your employees, etc.
When a business or store can effectively manage the time between these factors and ensure a smooth flow of cash, it is known as cash flow management.
There are several strategies that can help a business or store to achieve effective cash flow management. Some of them may yield high interests, while others may be less risky. Many store owners also invest in chit fund schemes to boost their cash flows.
Here are the top 6 ways which can help you increase your cash flows:
1. Business credit cards:
Most banks offer business credit cards which can be an effective and short-term solution to generate emergency cash flows. It is also useful when you have to bridge the gap between the pending payments and receivables.
2. Long-term financing options for large assets:
When you wish to purchase high investment assets for your business, such as land, equipment, machinery, etc., it is better to opt for long-term financing options. This way, you will not block your working capital in procuring these assets, and you can utilize it in managing your cash flows. You can space out your payments over a longer period to ease the payments and not burden your finances. Additionally, if you already own equipment, you can look into getting an equipment leaseback loan. This is a perfect way to infuse any business with capital while leaving the line of credit open for different needs and preserving the cash position.
3. Create subscription income:
If your store deals in products that users purchase frequently, then you can use a subscription-based model. In this model, users can pre-subscribe for the products of their choice and receive the goods on a recurring basis. Through this, they pre-pay for the goods, and that can help you substantially improve your cash flows.
4. Create a separate high-interest bank account for your business:
Most banks offer high-interest-yielding accounts. You can use these accounts for your business compared to savings accounts that may have a lower interest pay-out rate. When you invest in a high return savings scheme, it can help keep an abundant cash flow whenever you need it. Avoid using financial instruments such as certificates of deposits (CDs) since they may lock your funds for a specific period. And if you wish to release your funds sooner, you may need to bear the cost of extra interest.
5. Monitor your Inventory Effectively:
Inventory management is one of the most crucial factors for effective cash flow management. Excessive inventory can become obsolete or even expired in case of low shelf-life products. Instead, selling your inventory which is less probable to be used in the next six or twelve months, maybe a wiser option.
6. Keep your cash growing:
Adopt investment methods that help you grow your cash. The Rule of 72 is known to be one of the most well-known methods of multiplying your cash flows. This rule states that if you wish to double your assets in a certain period, simply divide the 72 by the number of years you wish to double your investment to estimate the rate of interest required. For example, suppose you want to double your investment in six years. In that case, your expected rate of interest on your investment should be 72/6 = 12% p.a. Some of the most popular investment instruments which help yield a higher return on investment include chit funds, equity mutual funds, equity shares, ULIP policies, etc.
Above are some well-established and time-tested methods for improving cash flows in any business or store. Effective cash flow management is often crucial to the growth and stability of your business.