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Cash flow is the number one headache for entrepreneurs. If more money is flowing out of your company than is flowing in, you could take a loan to temporarily correct the problem. But since borrowing can dig your enterprise into a deep hole, I would urge you to apply the remedies listed below. They will help you address the underlying problems instead of avoiding them:
Collect money up front. Depending on your industry, it might be customary for you to deliver your goods or services without being paid up front. But why shouldn’t you secure money from clients ahead of time, by asking for a third or a half of the total amount due upon signing an agreement? You can receive the balance upon delivery, because it pays to get as much as you can up front.
Collect accounts receivable. The most effective way to get paid is to keep track of what you are owed, without allowing invoices to get “stale.” Also remind customers of what they owe you and print the words “Remit in 30 Days” or, “Due Upon Receipt” on the invoices you send. And remember that because companies go out of business, getting paid promptly is sometimes the only way you can be assured of getting paid at all.
Stretch out the amount of time you have to pay your vendors. To avoid having to negotiate a timetable on every invoice, establish trade credit accounts with your vendors so you can repay an agreed-upon minimum amount each month.
Liquidate inventory. If you are in a cash flow crunch, liquidating or returning inventory or assets can raise cash quickly. I know one company that generated money quickly by selling a batch of slow-moving products on eBay.
Retain cash. Capture some of the cash that flows through your organization. Set it aside for those “rainy days” and you may never have to endure another cash flow crunch again.
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7 Comments Post a comment
Thanks for posting five ways for increasing cash flow. If you have sustainable cash flow thats fine, but if you are in cash crunch, then you need to find ways.
I would suggest few for those who are in cash crunch.
1. Most of the bosses, they take salary first. Pay yourself last after paying all other expenses,
2. Body shop your employees to another company for short term,
3. Outsource jobs to others,
3. Use part-time support staff,
4. Have a cost cutting brainstorming session with your partners and also employees
5. Broaden staff responsibilities.
There many be many other way outs but I have practiced above Five many times and it woks.
Rajesh Shakya
http://www.rajeshshakya.com
Strategy and the game plan.
Please pardon my post respectfully, due to a request of Business Foundations, I have been unformally compeld into posting a comment on this article.
"Collect money up front." True
"Collect accounts receivable". True.
"Liquidate inventory." True.
"Retain cash"Collect money up front. True.
"Stretch out the amount of time you have to pay your vendors. To avoid having to negotiate a timetable on every invoice, establish trade credit accounts with your vendors so you can repay an agreed-upon minimum amount each month." I dont agree with this, if people take this fine thats there business.
But anyway back to Business Foundations, I agree with the 5 ways entre. can increase cash, but it is sort of elementary school accounting 101... could you offer more explicit forms of raising cash for R&D, and or marketing expantion. Something more conceptial than tangible?
Great suggestions! Please allow me to build on this and add another one:
For those companies that sell products or services to other companies or government agencies, there is another, perhaps even even easier solution.
They can sell their Accounts Receivable invoices at a small discount to a third party investor. This brings any business that suffers from slower paying customers close to a COD business.
There is no real benefit for any company to wait 30 - 60 days or more to collect their A/Rs, but converting their A/Rs into immediate cash is not only easy, but also very beneficial.
It creates instant working capital to pay ongoing expenses (e.g. payroll)or to accelerate the growth of the business (by being able to fulfill more and larger orders) without creating additional debt. Cost of money is only tied to sales (the more you sell the more money becomes available), and there is no principal or interest to pay back.
If anyone has any questions or would like to know more, I'll be happy to help.
Ralf Bieler
(561) 746-1954
Ralf@MultipleFundingSolutions.com
I would like to assist you on the topic of obtaining a method to regain a cash fund. The liquidity goal can be done in a number of ways, however, some of the past strategies are not instant gratification anymore because of the downsizing and the free market competiton which introduces newer products.
I would always suggest to a client whom is seeking to create a cash cow, to be very careful with the accounts receivables and the 1/3 up front plan, because now adays people are thinking of ways how not to pay for services rendered and this puts the manager in a financial slump as well as his or her community.
The most sound advice is to study inventory, which materials are not required or vital to the organizations production.
Utilize the answerring service as the receptionist.
liquidate fixtures inside the office which are baubles.
There are a number of ways to cut the fat in an organization, especially the repetitive usage of mailing letters out to the same address, enclosed with the same data.
I saw some areas in your idea selections which seem iffy now a days, its true there was a time when the accounts receivables was the way to go and also the contract fee, but when war is in cession, the business man or woman has to show compassion, but be the lion on the prowl.
I hope this allowed you more space to elaborate in liquidity strategies
sincerely
BGuster@aol.com
http://www.collectionagencyservices.net
<a href="http://www.collectionagencyservices.net">Collection Agency Services</a>