11 December 2017

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 that will help you grow free cash flow:

Increase the effectiveness of the billing system Automating invoice generation using specific softwareHere You have the link to a free one) and sending them immediately to customers reduces collection latencies.
Optimise inventory planning Identify the best-selling products, detect which other items are moving at a slower pace, and make decisions. Optimise your inventory at a stroke 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 will be able to find some solutions.
Renegotiate agreements with your suppliers: If you manage to get paid by your clients before you pay your suppliers, the equation's result leans heavily in your favour. Work on strengthening the bonds that connect you to them, invest in long-term relationships, and try to get them to offer more flexible payment terms. If you can't manage that, try to negotiate a discount for early payment. 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 proposals, one simply needs to take the precaution of remembering that their implementation should not interfere with the normal economic activity of the business, which is why good planning is necessary.