Managing Cash Flows: Steps To Improve Cash Flows

June 15th, 2006 Comments off
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It is critical that a business needs to monitor its cash flow very carefully. Below, are some suggested steps to attempt to improve the cash flow of a business.

STEPS TO IMPROVE THE COMPANY’S CASH FLOWS:

Improving Pricing policy

This can then improve the gross profit margin of the business and assuming constant cost hence when the money is collected , there is then a larger quantum of liquid profits

Attempt to increase Sales Volume

Again, the impact means a higher sales and assuming costs maintained. So, if cash are collected back, then there is a larger quantum of liquid profits

Reduce or manage effectively the business expenses.

By reducing cash outflow in terms of payment of goods or services can become smaller hence overall net cashflow can be saved/improved

Manage your cash outflow for capital expenditure by ensuring that the fixed assets are absolutely necessary before incurring it.

Sometimes, for a business, there is a need to weigh profitability and cash flow in investment appraisal ( to buy fixed assets). Hence, payback basis might be one answer to improve cash flow. Focus on short or quick payback though profitability level might not be the desirous level. Perhaps, balancing this cash flow with other projects that give higher yields might be more appropriate.

Apply for tax installments to the Authority for the payment of any income tax payable

Obtain other sources of financing like bank overdrafts, term loans, debentures, and longer credit terms from suppliers..

Use factoring facility to convert your billings to customers into cash.

Instead of using one lump sum to paid for fixed assets, go for leasing or hire purchase terms to alleviate cash flows problems

Strategically, when the business is expanding drastically and to prevent overtrading or under-capitalized ,it is critical that the shareholder need to put additional money in the form of paid up capital into the business instead of relying on external parties as mentioned in item 6.

To improve its cash flow, it is important to review all cash flow projections whether cash inflow or outflows and the ability to PLAN, TIME or MATCH it accordingly. This might “help” to alleviate some challenges posed by cash flow deficit though this is a short term gap measure.

A business cash flow can be improved if top management exercise less risk appetite and are more conservative/ prudent so that cash flow can be conserved within the business instead of aggressive investments into the projects.

Hive off or dispose off unwanted, surplus fixed assets and investments.

Plan strategically by looking at innovative means of unlocking cash out of your fixed assets like Sale and Leaseback, creating Real Estate Investment Trust (REIT)

Make your fixed assets investment turn faster. For example, convert it into warehousing facilities to lease out to others or sub-lease your office which has surplus space or share common facilities and leave balance for rental,etc.

Improve the Cash Operating Cycle of the business

[ Refer to my article explaining what is Cash Operating cycle]

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