10 Steps To Master The Cash Flow
Cash flow is the net amount of cash and equivalents being transferred into and out of a business. As an apparel entrepreneur, you need to keep a close eye on cash flow and make sure it remains positive. Product-development cycles are long and your incoming cash must at all times cover the cash going out. If you don’t have enough incoming cash, you’ll have difficulties paying suppliers, salaries, rent, etc. Not mastering cash flow is a common reason for going out of business.
What can you do to improve your cash flow?
Read the following ten steps to help you master your cash flow.
1. Plan ahead of time
When starting out, you probably have enough funds in your bank account to keep you going through the startup phase, product development and launch. You can easily feel well-funded and tempted to spend your cash on every opportunity you see. Plan in detail how you’ll run your business, and determine where to spend your money and where to save it. Go to the Bootstrapping chapter to get some ideas.
2. Control your sample costs
During the product development phase, you’re making a couple of samples per style. The material, making, pattern, and transport costs will add up to a substantial amount. Go through your alternatives for who’s making your samples and patterns. Perhaps a factory is the best option—or maybe you can cut down the amount of samples you make?
3. Use your credit card
Using your credit card when paying certain bills can delay your payment 30 days, which can be enough for you to receive an incoming payment.
4. Set your payment terms
Ask your customers to pay earlier and shorten your payment terms. Can you request 30 days net, or even 20 days net, instead of 60? Send invoices out immediately and you’ll receive your payments earlier. Buying time this way helps with your cash flow.
5. Have a buffer
Make sure you always have a financial buffer in case you encounter unexpected costs or a customer is late with a payment.
6. Ask your customers to pay up front
You can ask your customers to pay up front for ordered garments. You can also ask for a partial payment upon order. That way you’ll have some incoming cash before production and delivery. Everyone loves an incentive—so perhaps offer your customers a discount for up-front payment.
7. Leasing instead of buying
Leasing supplies and equipment generally ends up costing more than buying, so this may seem counterintuitive. But mastering your cash flow means that you have to pay attention to the money coming in and going out for your daily operations. By leasing rather than buying, you pay in small increments, which improves your cash-flow situation.
8. Conduct credit checks
Conducting a credit check of customers paying by invoice will expose any poor credit ratings. A poor credit rating means there’s a significant risk you won’t receive your payments in time, which will hurt your cash flow. If you still want to sell to someone with a poor credit rating, you can arrange a high interest rate for late payments.
9. Check your stock and inventory
Maybe you have products in your stock that aren’t moving at the same pace as your other products or that don’t sell at all? Make an extra effort to get rid of them since they’re tying up a load of cash. It can be worth selling them at a discount to improve your cash-flow situation.
10. Increase your prices and lower your expenses
Have you found your perfect price point? Experiment with your pricing to see how high your customers are willing to go. When buying materials and supplies, remember that everything is negotiable. When producing a large number of clothes, every small price component matters. Less money flowing out and more flowing in will help you run your daily operations and increase your profits.
Go through the above ten points and look at every part of your business to make sure you maintain a positive cash flow and stay in business.