In the long-run, free-cash-flow management, debt financing, and equity are the ideal sources to attain a working capital. However, sometimes all of these options may not be available to every business owner. This is especially true for small business firms; hence the need to decide on ways for managing their cash-flow effectively.
Smart tips by Michael Giannulis
According to the entrepreneur Michael Giannulis, effective cash-flow management strategies to help small business companies drain their working cash are:
- A milestone payment
Small business companies whose service or product needs a tremendous amount of effort or cash to get started may need a milestone payment from their client. Web designers, PR agencies, graphic designers, marketing agencies, and sometime construction houses also fit under this category. Not every client may agree to making the deposit payment, so it’s always a wise decision to try and make out a negotiation.
- Finance purchase orders
For merchandising and manufacturing organizations that need a high cash amount to fulfil purchase orders, the best solution for them would be finance purchase orders. When you have a purchase order at hand, the finance company will pay a vendor to attain the inventory or merchandize required to complete the purchase order. This reduces the concern to achieve a large order but falling short because of cash.
- Favorable payments
Vendors have an incentive to assist in consumer financing. An extra two weeks to clear a payment can be the difference between expanding or missing payroll. If the payment’s terms are 15 days, you can request for 30 days. If it is for 30 days, you can ask for 45. This entirely depends on your association and rapport with the vendors. You should also stay patient and persistent during this process.
- Sell future revenue
A merchant capital is a workable strategy for customer businesses such as restaurants or retailers. This includes withdrawing a loan which is repaid through a specific percentage of the debit or credit card transaction volume received by the business. This strategy is useful for small companies that have a secure transaction record. You should also ensure that the organization’s margins can back up the financing cost, or else it could lead to massive financial failure and ruin.
- Maximize margins
Maximizing margins helps small businesses generate more capital which can be used to fund their daily operations. Two ways a company can maximize margins is either by amplifying the charged amount or by reducing the cost of delivering the service or product. Increasing the price is an excellent choice for business houses that have a strong demand for the service or product. But be cautioned that this isn’t viable for all business units. There could also be a unique product or value proposition that is not attainable from competitors. Any rise in cost needs to be carefully thought out to avoid customers leaving.
These are a few ways to help small business companies regulate and maintain a steady cash flow.