Among the crucial concerns of an SME, cash flow management is a major one. An SME is a small or medium-sized enterprise or business that employs less than 250 people and produces a revenue of less than $20 Million.
SMEs face technological, communication, finance, human resources, and marketing challenges. In the long term, cash flow, equity, and debt financing are the best sources of positive revenue. As cash flow management is a responsible and challenging task, it is necessary to overcome cash debts.
Cash flow must also be recorded accurately using bookkeeping software such as GnuCash or Quickbooks. In addition to recording and managing cash flow through software, here are four ideas for better managing your SMEs’ cash flow.
Cut Expenses
To improve cash flow, you need to increase revenue or money coming into the business. However, many business owners or accounting experts will neglect to focus on cutting expenses. Some expenses can be cut permanently, while others may only need to be cut temporarily.
Another option is to negotiate bills with vendors to get better rates. In some cases, vendors that see you as a loyal client will offer discounts on their goods or services or negotiate a quid-pro-quo and trade goods or services.
Collecting Accounts Receivable
Many SMEs suffer when they allow delayed payments to their customers for goods and services. While some customers will be on time, they are more often slow to pay or neglect to pay at all.
The easiest solution to this problem is to demand payment upon receipt. However, this will sometimes lose customers who cannot afford to pay for a good or service upfront. Here are some ways you can get outstanding accounts paid.
- Offer discounts to customers who pay upfront or in less time than given.
- Offer multiple ways to pay for goods and services.
- Use an automated system to bill and send regular reminders that payments are due.
- Use accounting or bookkeeping software to keep track of payments, automated reminders, and due dates.
- Offer discounts for referrals or other financial incentives and on-time payments.
- Employ a person or firm to collect outstanding bills and make payment arrangements for overdue accounts.
Pricing Margins Too Small
Economists discuss the supply and demand of goods and services and portray specific rules and regulations for efficient supply and demand. To determine the exact margins for the price, similar rules apply to small and medium enterprises that face cash flow issues due to the wrong determination of prices.
SMEs seem to have more issues with pricing goods and services too low compared to larger businesses. This pricing issue is that SMEs don’t have the resources or the time to do extensive market research. However, if they find the time and resources to do market research and set their pricing to be competitive and profitable, it can open up the business’s cash flow.
Sell or Lease Unused Equipment
While most SMEs use everything they own to operate the business, there are times when equipment goes unused or is not used all the time. In these cases, you should consider selling the equipment or leasing it out when not in use by your company. Unused equipment is a source of revenue that is often untapped or not considered when looking at streams of income for your SME.
Conclusion
SMEs are enterprises that have fewer employees, which generates less revenue. This lower revenue generation leads a company to take on debts, resulting in cash flow issues. While positive cash flow is a concern for all businesses, SMEs sometimes have more significant challenges.
Keeping these ideas in mind will help your small or medium business overcome cash flow issues and manage your business in the black financially.
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