As an entrepreneur, keeping your business safe from any form of cash deficiency is the most crucial responsibility. Most businesses run on day to day cash flow but at the end of the day you do need to keep a certain amount of liquid cash handy in case of business emergencies.
But sadly even after a lot of precautions some businesses do face a cash crunch which might have a very adverse effect on the functioning of the businesses. Companies who face cash deficiency tend to go under water after a certain point of time as it has a long term effect on the company.
Hence it is very important to ensure that you keep your company safe from any kind of capital deficiency issues. Though things like digital cash and bitcoin dice are becoming more and more prominent these days, sometime the traditional liquid cash will be the element that comes to your rescue.
Here are 5 ways to keep your business safe from capital deficiency.
1- Organize Your Books
Your financial books are one of the most important elements of your business. If you want to ensure that you do not face any problems of deficit capital, you need to ensure that your books of accounts are not cluttered. They need to be in place and this will in turn give you a transparent picture of your finances.
2- Implement a Credit Control System
Having a proper credit control system ensures that you know when you have to pay your vendors. A clutter free system ensures that you are able to gauge your payments and thus keep away from facing any kind of capital deficit due to untimely payment.
Make sure to coordinate with your vendors in order to ensure that you have a balanced payout date on paper.
3- Provide Early Settlement Discounts
If you are able to get your money in on tie, you would never have to face any kind of deficit. The best way to ensure that you are getting the receipts on time is by providing your vendors with an early settlement discount. This ensures that you get all your payments in and you are further able to invest that as your rolling capital.
4- Uncover the Cause for Losses
The biggest cause behind capital deficit is losses. If you are facing constant losses, you need to figure out the cause and counter it. This will help to make sure that you have enough cash on hand at all times for capital investments.
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5- Cash Flow Forecasting is Essential
It is very important to forecast your cash flow so that you are able to prepare a plan for the capital requirement of your company.
This will ensure that your company does not face any problems of capital deficiency at any point of time. Since the profits earned during one month is essentially rolled over to the next, you will not have any problems of shortage if you ensure that the above 5 things are in place.
The Bottom Line:
Many of the small businesses, especially startups fail every year, and in most of the cases, capital deficiency is the root cause. Simple steps like above can, however, prevent your business from running out of capital!