Free Cash Flow: Strategies to increase your contingency insurance

Are you satisfied with the financial capacity of your company? Do you know that cash management is a key aspect of your business success? Do you know how to increase free cash flow?

When assessing how much the company has earned in a year, instead of using the income statement, which would only report the business situation from an accounting point of view; Many entrepreneurs calculate free cash flow, which is a much more realistic measure of their company's situation.

That amount of money is the available balance which can therefore be used to service debt or to pay out dividends. When, over the years, this amount increases at the end of each financial year, the financial health of the business is confirmed and future profits can be anticipated. The opposite occurs if free cash flow is reduced, leading to a loss of liquidity and/or an increase in debt.

However, there are ways to increase this amount, the best insurance your business has at its disposal to combat unforeseen events, and a source of opportunities, if properly managed.

Strategies to grow free cash flow

Once you have calculated the free cash flow of your business (you can use this method explained step by step and with examples), the objective is to increase the level of cash. For that, as an entrepreneur, you need to apply one of the following strategies, which will help you to grow your free cash flow.:

• Increase the effectiveness of the billing system: automate the generation of invoices using specific software (here You have the link to a free one) and sending them immediately to customers reduces collection latencies.
• Optimise inventory planning: identify the products that sell the most, spot those other items that move at a slower pace and make decisions. Optimise your inventory by technology.
• Save on subsistence or petrol costs: There are currently different solutions that allow you to reduce these types of costs, which are so important in the accounting of the business. Here you can find some solutions.
• Renegotiate agreements with your suppliers: If you manage to collect earlier from your customers and pay your suppliers later, the outcome of the equation is entirely in your favour. Work to strengthen the ties that bind you to them, go for long-term relationships and try to get them to relax your payment terms. If you can't, try to get them to give you some kind of early payment discount. Here you have an overview of the Harvard Negotiation Techniques, that guarantee you good results.

In implementing any of the strategies to increase free cash flow The only thing to remember is that their implementation should not interfere with the normal economic activity of the business, so good planning is necessary.