Helpful tips to manage your business cash flow
Surprisingly, cash flow is an often neglected area of business. Not only is cash flow important for the long-term survival of your business, but it will also help to maintain healthy working capital to see you through the quieter times.
Last year threw an additional spanner in the works for many businesses, and managing cash flow is even more critical. Here’s a few helpful tips on how to manage your cash flow.
Forecast and track your cash flow
The purpose of forecasting your cash flow is to track when money is coming in and going out, and can identify when you will have extra cash or experience shortfalls. In essence, forecasting helps to avoid future financial problems, and help with decision making throughout the year.
Know what mechanisms can quickly increase cash-in and reduce cash-out
If you’re experiencing cash flow shortages, there are a number of options for you:
- Revise your pricing
- Increase your volume of sales
- Find more efficient ways of working, so you can get more done in less time
- Manage debtors.
- Revise outgoing expenses, inventory, time-management and staffing levels to see if there are some savings to be made
- Re-financing loans
- Sell underused assets
- Minimise energy costs
- Review your utility bills and other bills such as insurances, phone and internet – make sure you’re getting the best deal.
Sales and customer growth
What can you do to increase your sales and grow your customer base? Is there an advertising campaign you have run in the past which was successful? Can you use digital marketing channels (eg. social media) to promote your products and services? If you choose to run an advertising campaign, limit your exposure to areas located close to your base, or be more specific with your customer demographic to better target the ‘low hanging fruit’.
Remove barriers to payment
Late or non-payments can be disastrous for small businesses, so it pays to do your due diligence on prospective clients before commencing any work.
Consider requesting shorter payment terms and issue your invoices promptly, with well defined Terms and Conditions. Depending on the type of business you operate, you might also consider asking for a deposit or milestone payments – this is particularly relevant if your business provides a product or service that requires substantial cash or effort before you can deliver.
Don’t make payments difficult. Offer a variety of payment methods, including your bank account number on invoices, options to pay via credit card or additional payment services such as EFTPOS and PayPal.
To encourage on-time payments, you might consider offering an incentive or discount. If some clients are notoriously late, don’t be afraid to negotiate a way to recover your funds, and then consider if you should continue doing business with them.
Keeping track of stock levels
If you run a services based business, you probably have certain stock levels which need to be maintained. Control your stock levels according to higher or lower cash flow periods – can you adjust the quantity and timing of your purchases to coincide with these periods? If you’re experiencing some cashflow shortages, consider only holding the stock required to run efficiently; excess stock can take up valuable storage space and insurance costs.
Create a cash reserve
Having a healthy cash reserve will provide the confidence and reassurance to continue in your business. It will also help when presented with unexpected expenses, or strategic investment opportunities (eg. bulk buy).
Educate yourself in your finances and don’t be afraid to ask for help
One of the best ways to feel financially empowered is to understand and educate yourself in your business financials. The professional and experienced team of accountants at Greenhalgh Pickard are here to help guide you and provide advice on better managing your business cash flow.
Many business owners are also moving to cloud-based solutions to improve productivity and efficiencies. These systems can provide real-time visibility of cash-flow and help you understand your cash position.