1. Money

How to Increase Your Cash Flow

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Since cash flow is the life blood of your organization, cash flow analysis is an important financial technique you should use. You always want to increase your cash position. With all of the financial obligations you have, sometimes it seems impossible. Follow these steps and you will see your cash increase.
Difficulty: Average
Time Required: Ongoing

Here's How:

  1. Reduce your amount of fixed costs. This first step is the hardest. Fixed costs is the money you need to support the current level of your business. Try to find ways to lower your rent and building expenses, staff expenses, sales expenses, and anything else you think is "fixed;" in other words, expenses that don't change from month to month. This will free up cash for your business.
  2. Take stock of your inventory. Don't stock too much inventory because you may not be able to sell it. Sell what you have before ordering more inventory to avoid overstocking. On the other hand, don't stock out. Have enough inventory on hand to meet your customers' needs. If your customers want to buy and you don't have enough product, you will lose customer good will. You have to strike a balance between too much and enough inventory.
  3. Take a look at your prices. When is the last time you have changed your prices? Have your prices kept up with industry average prices? Check out your competition and see what their prices are. Make sure you are in line with the industry. Customers actually expect small, regular price increases.
  4. Don't buy your supplies all in one place. You may want to buy your computer hardware from one supplier, but your computer supplies, such as inkjet cartridges, from a mail order catalog or off the Internet. Scout out different types of suppliers for different types of supplies and compare the prices that you can get. Only buy in bulk if you think you'll use the larger in amount of supplies in a reasonable amount of time.
  5. Lower your cost of goods sold for your product or service. Cost of goods sold reflect your variable costs or those costs that change with production. Variable costs are also called direct costs. Lowering variable costs will free up more cash flow for your company.
  6. Manage your cash position so you will stay liquid but not too cash-heavy. Your current ratio should show that you have enough cash to cover your short-term debt obligations but not so much cash that you are losing return on your investment in assets. Compare your current ratio to your industry average current ratio to make sure you are in line with the industry.
  7. Include your credit accounts, or your accounts receivable, in your cash flow analysis process. Take a look at your credit policy to see if it is adequate for where your company is at the current time. Develop an aging schedule aging schedule for your accounts receivable to see if you have delinquent customers.
  8. Take appropriate steps to increase your sales revenue. Cash flow analysis involves finding ways to increase sales revenue while decreasing costs. Use creative strategies to entice customers to buy your products or services.

Tips:

  1. Learn to do cash flow analysis.

What You Need

  • A list of all your expenses and costs
  • A list of your sources of sales revenue

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