Of the 50% of businesses that fail within the first five years, 82% fail due to poor cash flow management. For manufacturers, the cash flow is everything as the business cannot produce more items without having enough money to fund it. Manufacturers need to have tight reins on the cash flow if they are going to be successful, as they may have to wait for payments far longer than other businesses, such as those in a retail environment. But if bad cash flow management can cause business failure, then good cash flow management should mean a business boost. Here are a few ways to boost cash flow in a business without having to sacrifice those shares.
Tighten Up the Budget
One of the fastest ways to tighten up a budget is to reduce money being spent on items that don’t have a direct impact on production or sales. This means getting rid of – even if only for a short while – all those items that simply add no immediate value and are classified as nice-to-haves. For manufacturers, this could include fancy new branded vehicles, expensive show floors, and more. Instead, focus the cash flow on items that bring in the income, such as the best labor the business can afford and a production line expert.
Decrease Owner’s Liability
Usually, at this point, we will recommend that the owner puts their own money into the business to increase owner’s equity. However, a long-term solution to a more stable business cash flow is to decrease the owner’s reliance on the business to pay their personal expenses. They can improve their personal cash flow by reducing some of their spend or freeing up some payments. One of the fastest ways to get this done is by applying for a consolidation loan.
Find Good Deals on Assets
There are a number of industries that can make use of good quality, second-hand equipment or machinery. Often owners pay a fraction of the purchase price of a new item. New equipment is hardly ever worth it unless the industry requires it to be new, as depreciation needs to be factored in. In order for businesses to make the most out of the equipment, it needs to be in mint condition which means repairs and maintenance are kept to a minimum. Business owners will have to factor in the cost vs the maintenance or replacement cost of the item to be successful.
Reduce Business Waste
Business waste differs from industry to industry and for manufacturers, improper use of materials, slow labor, and inefficient processes can skyrocket the waste tab. The integration of proper production and process flows will curb waste as it allows the business owner to zero in on any inefficiencies and deal with it accordingly. When proper systems are in place, businesses can focus on their customers, sales, servicing, and other areas of the business that deserve more attention.
Business owners who can resist the urge to drain the business coffers will reap the rewards in the long run as cash in the bank tends to open a few doors. Getting the cash flow established is a large chunk of the business operations and has the potential to make or break the business.
By guest contributor Chrissy Jones. Photo Entrepreneur.com.