In Depth

5 ways new businesses can maintain healthy cash flow

Munira Rangwala
21st Feb 2017
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As an entrepreneur who wants to keep your business up and running, ensuring a steady cash flow should be the biggest concern on your mind. Producing quality products and services and building your brand is important, but making sure that there is a free flow of cash to keep the lights running and the doors open is even more necessary. Your business can come to a grinding halt if you are unable to pay salaries and buy materials for even a month. Startups get so caught up in generating sales that they often ignore the importance of a solid in-flow of cash. Here are a few ways in which new businesses can maintain a healthy cash flow.

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Sell unnecessary equipment

Every business has a few equipments and machines lying around that are of no use. If you experience a cash crunch, it is best to sell those equipments and put the blocked cash to better use. In case you have inventory lying around that is outdated, consider selling it at lower costs so as to make the in-flow of money smoother.

Separate business and personal finances

If you're mixing your business profits with your personal expenses, there is bound to be a glitch in your company's flow of money in the long run. Make sure you open a business checking account for your startup so you can keep a better track of your business expenses and personal finances.

Focus on profit-making

Small businesses are bound to make losses in the beginning. However, after a certain point, those losses need to gradually convert to profits to keep the business afloat. There are two ways of going about this. Firstly, you can increase the rates of your bestselling and most popular products by a small margin in a manner that it doesn't affect your customer's purchase patterns but it also leads to an increase in cash-flow. Secondly, you can put a halt on the manufacturing of those products that cost too much to assemble if they don't bring in too much money.

Clear your debts in time

Try to pay off your credit card bills and invoices as soon as you can to avoid the piling of debts as smaller amounts are always easier to put aside as compared to larger ones. Also, you can give discounts to those vendors and suppliers who pay their bills in time so as to encourage cash inflow. Keeping that logic in mind, charge a fixed fee to those who keep delaying payments. For this process to work smoothly, establish payment arrangements with your suppliers and dealers in advance.

Maintain financial records

Every entrepreneur has to deal with book-keeping at some point in his career. It is very important to note down your financial transactions to get a clear view on where your money is being spent and from where your profit is coming in. If you examine all your expenses and profits, you might be able to find ways to cut down unnecessary expenditure and maximize income.

As mentioned earlier, maintaining a healthy cash-flow should be of utmost importance for small business owners as the inflow of money is all that will matter in the long run. The sooner you start to understand the intricacies of your company's flow of money, the better you'll be able to manage your business.

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