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Empower your business with proactive processes – BayStateBanner

by Arifa Rana

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If the past two years have taught us anything, it’s to believe in the adage “Expect the unexpected.” Rather than believe, perhaps it’s better to embrace in order to empower your business against situations that otherwise feel uncontrollable.
Economic shocks are inevitable; proactive strategic thinking can help your business withstand and, ideally, survive whatever the future has in store.
While you might not have heard this phrase before, you’ve likely felt the stress of it.
The “payment to cash gap” represents the duration between when you pay for stock or materials and compensate your employees and/or subcontractors to when your customers pay you. The longer this duration stretches, the more tenuous your return on investment (ROI) becomes.
Consider the following strategies:
 
Ask the following questions:
Could your vendors offer more flexibility with their payment terms?
You want to decrease the time between receiving payment from customers before paying vendors. If you can’t agree on more favorable terms, forfeit the 2% discount for payments submitted at 10 or 15 days and just pay on a net-30 schedule.
Is it possible to improve your profit margin?
After all, at the end of the day, higher margins equal more cash in your pockets. You can do this by:
A warning trigger ideally allows you to compare current performance against past data, whether your company’s or the industry’s.
Set up triggers for the following:
If you approach your bank for credit, the amount of capital you have in the business will determine whether you’ll be approved for credit, as well as how much. Capital is intended to safeguard your business against economic shocks.
Review your own reserves. Traditional advice suggests a minimum six months of expenses saved in the bank; ideally 12, if possible. These funds will help your business survive against unexpected losses or unfavorable industry shifts.
How much reserve capital does your business actually need?
It all depends on your own cash flow forecast and relevant “what if?” scenarios. If the number exceeds what you currently have available, consider approaching other sources, whether angel investors, Small Business Development Centers, industry grants, or more personal paths closer to home, like taking out a second mortgage or enlisting the help of family and friends.
None of us has a crystal ball; however, you can set up your business to better anticipate and endure moments of financial weakness. Ultimately, you want a short cash cycle with enough cushion to absorb any economic shifts to ensure your business is agile and resilient because, let’s face it, it needs to be.
CambridgeSavings.com

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