Growing a business carves perhaps some of the most bizarre feelings for entrepreneurs. On the one hand, they’ve beaten the dreaded first-year woes and are on their way to that elusive next step. On the other, they’re about to embark on yet another riskier journey – where the stakes are even higher!
One of the biggest reasons growth is such a dangerous period for businesses is cash flow. Fail to play your cards right, and your business can be obliterated in an instant.
Bearing this in mind, today’s article will look at some of the best ways you can preserve cash flow if you are in that daunting period of growth.
Analise all of your existing payment processes
The first step is to take a good, hard look at your existing payment processes. Are you using the most efficient methods possible? Are you chasing clients as soon as your payment terms have expired?
If not, then now is the time to make a change. The last thing you want is to be hemorrhaging cash because you’re not getting paid on time.
Then, regarding payment terms, now might be the time to review them. We’re not going to throw out figures which tell you what yours should be; every industry is different. However, if there is a major discrepancy between the terms you offer clients and the terms your own suppliers provide you, it might be time to take action.
Talk to your own suppliers
On the subject of action, this leads us to the next point.
As a business grows, the demand for stock and materials will increase. This, in turn, means that you will need to order more frequently from your suppliers.
With this being the case, it might be a good idea to talk to your suppliers about the possibility of extending your payment terms. If you have a good working relationship with them, and they are happy to do so, it can free up a lot of working capital which can be used elsewhere. Let’s not forget that you’re no longer a new business, and they may be more inclined to provide more favorable payment terms.
Review each new contract meticulously
Next, it’s time to turn your attention to new contracts.
As your business grows, you will inevitably enter into more contracts with new clients. Whilst this is great news, it’s important to remember that each contract comes with its own terms and conditions.
With this being the case, you need to make sure that you are reviewing each contract meticulously before you sign on the dotted line. Generally, this means paying more attention than ever to the companies you are dealing with. Do they have trustworthy credit scores? Or are they highly likely to default going forwards?
You also have to keep one eye on their demands. An overly eager client can look great for your bank balance, but if your business isn’t yet ready to take on a customer of this size, it can wreak havoc with your cash flow.
Invest in technology
Finally, it’s worth mentioning that technology can be your best friend during a period of growth.
There are a whole host of software solutions on the market which can help to streamline your payment processes, making it easier and quicker to get paid. In addition to this, many of these solutions can automate tasks such as chasing payments and sending out reminders. This, in turn, can free up your time so you can focus on other areas of the business.
Technology can also help you keep on top of your inventory levels, avoiding over-ordering and tying up too much working capital in stock.