“Improve your cash flow for a healthy business”
Profitability is a vital component of a successful business, but without proper cash flow management your business is at risk of failing. The cycle of cash in and out of your business determines your business’ solvency.
The saying ‘cashflow is king’ was great advice many of us have heard repeatedly from the older generations, and it’s just as relevant today. Here are some tips for improving your cash flow management:
Working Capital: In order to properly manage your cashflow you need to understand just how much working capital your business needs to run and keeping things moving from day to day, week to week or month to month depending on your business type.
Invoice as soon as you can – do you really need to be invoicing at the end of the month? Can you invoice as soon as the work is completed? What are your trading terms? Can you shorten your trading terms? If you are not invoicing as quickly as possible mainly due to lack of organisation or inconvenient to do so, then it would be worth looking at Cloud Accounting options. There are dozens of apps out there that will let you invoice on the spot with a few clicks. It’s also good practice to setup automated reminders that are delivered before the due date. Also it may be appropriate for you to ask for partial payments upfront, or milestone payments over the course of a project.
Stay on top of Debtors: Consistently remind those with outstanding debts of their obligations. Debtors will be more likely to pay your account if you keep on top of reminders and follow up with phone-calls. If you have certain clients that are chronically late then you need to look at ways to recover the costs to your business such as late fees or penalties. You should also review your credit policies for habitually slow paying customers.
Holding excess stock: Do you really need to be carrying and holding all of that excess stock? Do you have an efficient re-ordering method? Do you have any easy way for you and your staff to know what stock you already have on hand so they don’t purchase more of the same? Stock management can also be easily managed via the use of modern technology.
Purchasing and price comparisons – are you really getting the best deal? You could save significant amounts by routinely checking over your pricing, and asking for better pricing on items you purchase in bulk or can get more cheaply from another supplier. Also, opening up trading accounts where you were previously COD, once the relationship has been established can be a good way to improve your cashflow situation. It’s worth asking for extended trading terms where they are available – but always ensure that you budget for these large bills that will be due months after you have been paid for the work or you could run into trouble.
Pay bills only when they are due. Does anyone pay their bills early? – doubtful, but if you do, don’t. Keep the money in your bank as long as you can.
Continue chasing and winning new business. Don’t be over-reliant on the clients and customers you already have and bear in mind your client/customer life-cycle. Know how many new clients/customers or work you need to be winning each period in order to stay afloat and your hit your targets, whether you are trying to simply maintain a client base or grow.
Have a backup plan – in the unfortunate case when things go wrong it’s good to have a backup plan such as an overdraft, finance or access to personal funds to get you through a cash-flow crisis.
Remember, we are always here to assist you with your cash-flow management. Simply contact us to make an appointment – it could make the world of difference to the health of your business.