Ways to Increase Your Cash Flow

Do not over order inventory
Make sure you buy what sells. Do not buy something merely because it is a good deal or because you like it. Increasing the number of times your inventory "turns over" is one of the best ways to generate cash. However, make sure you offer enough product variety to satisfy your customers.

Convert dead inventory into cash
If items are not selling at or near their regular prices, reduce them until they sell. It is better to have extra cash on hand than worthless inventory which you will have to discount later on.

Get credit from you suppliers
Once you have a track record, it is common to get between 7 and 30 days of credit. Remember, you may be giving up a discount for taking the credit.

Limit the amount of credit you give to your customers
You must balance how much giving credit improves sales versus how much you lose by not collecting immediately form your customers. You can offer an incentive, such as a small discount, for prompt payment. Above all, before you ship the goods, make sure your customers will be able to pay for them.

Calculate your operating cycle to better understand cash flow.

The Differences Between Cash Flow and Profit
Cash pays your current bills. You need to have cash to meet the daily expenses of paying employees, buying merchandise, and covering your overhead. The question you should be asking yourself is -- "Do I have enough cash to cover my upcoming expenses?"

Profits pay your future bills. Although you may have enough cash to pay your current bills, if your business is not making a profit, you will run out of cash sometime in the future. Therefore, a second question you should be asking yourself is -- "How much profit do I earn on each dollar of sales?"

Calculating your Operating Cycle
The operating cycle is calculated to determine how long it is between the time you spend money (purchasing inventory) and the time you actually collect it (collection of revenue).

To calculate:
- Add: Accounts Payable (in days)
- Less: Inventory Replacement (in days)
- Less: Accoutns Receivables (in days)
- Equals: Operating Cycle