HOW TO CONTROL YOUR CASH FLOW

HOW TO CONTROL YOUR CASH FLOW

Many fashion businesses look like they’re doing just fine, but they end up bankrupt because basically their cash coming in does not cover the amount of cash going out. Your profits are meaningless without a contained cash flow. In this blog, we will discuss what’s a Cash Flow Cycle, improving your Cash Flow and avoiding Cash Flow Traps.

A CASH CRUNCH is what happens when something holds you up from paying your suppliers, paying employee salaries and buying materials like waiting for a payment from past season with a retail partner for example, and you already need to start the next season. This is one of the biggest reasons why you need to understand and manage what your Cash Flow is.

A Cash Flow Cycle loop looks like this:

– Purchase of goods
– Production
– Pay direct labor
– Billing sales
– Delivery of inventory
– Paying overhead labor
– Payment collection
– Payment on note
– Back to Purchase of goods

8 Way To Improve Your Cash Flow – Delaying how you release cash as long as you can while encouraging your customers/clients to pay you as quickly as possible.

1. Create terms for your clients to pay faster – Be proactive in revolving overdue invoices helps your company’s cash flow.

2. Sell any equipment you have not used for 2 seasons or more – Find any unused equipment and tools you own that are set in storage into cash and free up space in your office/warehouse by selling them.

3. Learn how to separate your personal account and business account(s) – Never mix your business and personal accounts. This is one of the first things you do when you start your business. Keep them separate, especially CREDIT CARDS. This makes your bookkeeping a lot easier too.

4. Always have a stash of cash ready in case of emergency – You need to make sure you have enough cash for your business to fund your working capital. A good amount would be 3 months worth of outgoing cash in the bank in case of a rainy day period. This can be part of your personal funds or a revolving credit fund.

5. Use your Credit Cards to pay – Using your credit cards to delay payments to vendors for 30 days, BUT do not forget to pay your cards on time to avoid high interest rates. It’s going to sting if you pay 3-4% interest on your credit cards just because you missed a few days due to negligence.

6. Ask for a CREDIT LINE from your suppliers – Develop a good credit line with your suppliers by regularly paying on time. This will help develop a level of trust between the two of you. Have a good relationship with your financial institution so you will have a better chance to get a loan later on.

7. Control your sample fee – A bad habit from designers is doing a sample over and over again until they get it perfect. While this is good to create a great product, it’s bad for your Cash Flow. Always keep an eye on how much these revisions are costing you so you can avoid overspending on your quest for the perfect sample design.

8. LIMIT YOUR EXPENSES – Being too lavish when you start out is a great way to destroy your Cash Flow. Instead of spending it badly on things you don’t need for your office supplies or tools, know when you can save and when you can spend. If you can do everything in your powers yourself in the beginning, do so, until such time as you can afford to pay for a freelancer or someone contractual to do it for you instead in areas like production, design, accounting, marketing, PR and in sales.

2 CASH FLOW TRAPS TO AVOID:

1. Taking huge orders that will not get you more cash – If you’re just starting out, a huge order may look like a miracle. Don’t get too excited right away and examine the terms of the deal. Calculate how long it will take before you start to see profits from this particular huge order.

2. Business Expansions could destroy your company – This is where your patience will be tested out. Growing your business organically without rushing things requires a lot of patience. Your main concern should be in quality control when expanding your company. The collections that you product and the level of services that you give your clients is something you need to be mindful of. This is where you create standards of where your brand stands out for.

How you handle your Cash Flow ultimately helps determine how successful your business can be in the long run. You may be killing it in the industry on paper with how hot your products/services are, but behind the scenes, your Cash Flow situation needs to managed properly. I speak here from experience on how difficult this can be as a start-up back then, even up to now, especially during a pandemic season where sales for fashion is on a steady decline. Be vigilant and wise with your Cash Flow expenses for your business.

Question of the day: Do you handle your company’s Cash Flow?

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What people talk 1 Comment

January 11, 2021 jocelyn

Cash is definitely important for any small business specially. A liquidity crisis puts pressure on both, the employees as well as the growth of the company. You must make sure you receive cash for the work you are doing.

Tips for managing cash flow :- Determine your break-even point – You should know when your business is profitable. It will give you ready-made target for projecting future cash flow. Maintain some cash reserve :- Your business may have cash shortfalls. If you start with some cash in your bank account, it will be easier to focus on cash flow and you won’t stress about the shortfalls.

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