Business Finance Management: How to Make Sure You Stay Out of the Red

Tuesday, February 17, 2015, 6:00 AM | Leave Comment

Most people assume that companies go bankrupt because they lack healthy profit margins on sales or because they are unable to make sales. However, the reality is that a number of enterprises make plenty of sales with healthy margins and yet they still close their doors. So, how does this happen?

One of the most important factors of business success is to continually maintain a positive cash position.

That means reducing costs when possible with vendors, creditors and customers.

How to Make Sure You Stay Out of the Red

Here are some essential strategies to maintaining that all-important positive cash position and staying out of the red.

  • Prepay Vendors and Creditors

    Make sure to prepay vendors and creditors when possible. In response, they should be willing to give you discounts, rebates and credits for prompt payments or early payments of invoices.

    In fact, you should be able to get a 1 to 2 percent discount if you pay within 10 days of receiving your invoice. If you pay upfront, those savings could be even higher.

  • Properly Managing Your Merchant Account

    Making sure you have the right high risk merchant account is an important part of minimizing costs.

    First, don’t overpay for terminal functions you don’t need, will never use and don’t want.

    Second, don’t be afraid to negotiate your monthly fees, monthly minimum transaction amounts and your overall rates.

    Finally, be sure to choose an option that best suits your business, the number of transactions you’ll be processing and the types of customers you’ll be selling to.

  • Liquidate Slow Moving Stock

    Don’t hold onto inventory for too long in the hopes of being able to sell it at full value.

    The longer you hold outdated products on your shelf, the higher your costs to finance that inventory.

    It’s no different than if you overcharged on your credit card. You’re allowing high inventory financing to erode your profit on sales.

    However, it’s not just about financing.

    Holding inventory too long means it’s less likely to be sold. Obsolescence, damage and pilferage all drive up your costs of inventory and the longer you hold that inventory, the higher these costs.

    The best companies make sure to liquidate slow moving stock items, and if they can get customers to pay upfront, then those savings are even higher.

There are two ways to increase profit and avoid losses.

The first includes having higher prices.

The second includes reducing costs.

Remaining a viable business over the long-term means controlling costs across the board and taking advantage of a positive cash position when it’s available.

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