While the financial health of your business is not always determined by the amount of cash you have on hand, having cash available is crucial to your business’ operations. Operating activities, such as purchasing inventory or paying bills, often occur before your business receives payment from customers. It is important to optimize your business’ cash flow, as cash often must be used before it is received.
Luckily, by improving a few operational processes, you can manage cash more efficiently and reduce the amount needed to operate your business. Here are a few tips and strategies to maximize the efficiency of your business:
1. Strategically Manage Your Inventory
Many businesses make the mistake of tying up their cash in inventory. Implementing a just-in-time inventory system or reducing the amount in stock can reduce your inventory holding costs.
One strategy is to implement a 10 per cent reduction in inventory. This can be accomplished by:
- Aligning your on-hand inventory with projected sales by evaluating current customer demand and projected sales for each product.
- Optimizing your order cycles and quantities by taking advantage of beneficial pricing, or reducing the amount of inventory stocked.
- Minimizing inventory by shipping slow selling and expensive items directly from the manufacturer to the customer.
- Eliminate obsolete and slow selling inventory.
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