Small Business Economics
Innovative Ways to Improve Your Cash Flow
Written by James Garvin for Gaebler Ventures
With credit lines drying up and small business financing harder to come by, finding new ways to increase cash flow is vital for the sustainability of your business. There are several ways that you can work towards improving your cash flow cycle.
There's no question about it, cash is king.
Cash flow, or the lack of it, is often the cause of failure for many new and small businesses. With out cash flow, you cannot fund your growth, pay your bills, or acquire new inventory. Cash is what makes the business cycle come full circle, yet many small businesses often find themselves short on cash when they need it most.
A business that finds itself short on cash will find it in desperate times. Knowing how to maximize and alter cash flow during down turns in your business will set you apart from your competitors and allow you to continue to grow your business even during recessions.
One common practice to increase cash flows is to ask customers for cash up-front. Some businesses are getting creative about their business models and getting customers to pay in advance. While this may be limited to only a few industries, the point here is that there are often creative ways to get cash up-front. Perhaps you can implement a custom manufacturing or design portion of your business and ask customers to put down a 50% advance. Whatever your situation, look at ways that you might be able to get some cash payment up-front.
Another growing trend for small businesses is to negotiate favorable terms with your vendors. Vendors want you to be in business and they understand that they only succeed if you succeed. Many vendors will often work with businesses to set-up a payment program that helps business owners improve cash flows including pushing out account payables to 90+ days compared the traditional 30 days. Some might even go so far as to provide you with some financing in exchange for equity or future debt payments.
An emerging practice that is taking hold in the small business markets today is selling your account receivables. Primarily used by more established firms selling to private investors, selling your accounts receivables is a way of generating immediate cash for your business while eliminating the need for you haggle to collect on outstanding receivables. A new firm called The Receivables Exchange allows small businesses to post their account receivables online for investors to bid on. It's like the eBay of account receivables that makes it easier for small businesses to liquidate their receivables and improve their cash flow.
Small business lending is still extremely tight in today's more conservative financial markets and cash flows have diminished for many small firms who have struggled through the recession. Creating innovative ways to increase your cash flow is one critical step to keeping your business growing and outlasting your competition through this downturn.
As with any good business planning, planning for a cash reserve should be made well in advance before you need the cash. If you are unable to secure a line of credit or get other credit financed cash, look to set-up a creative internal system that helps you increase your cash cycle so that when the time comes you can implement the process and keep your business sailing smoothly.
James Garvin began his education studying biotechnology. In recent years he has turned his interest in technology to helping two internet startup companies. The first business was an online personal financial network and the second was an e-marketing platform created to help entrepreneurs demo their web sites. Currently a student at University of California Davis, James is spending his summer incubating two new online businesses and writing about his entrepreneur experiences.
Share this article
Additional Resources for Entrepreneurs