Profitable businesses fail every year because they simply run out of cash. Stay in control, achieve healthy cash flow and grow your business with these tips.
Understanding cash flow is crucial if you want your business to survive.
Only by staying on top of the incomings and outgoings of your business can stay in control, make informed decisions and protect your business against unforeseen events, such as an unexpected tax bill from HMRC. Here are five steps to keeping your business in tip top condition by managing cash flow successfully.
1. Forecasting
Having a firm grasp on the flow of money through the business is the first step to effective cash flow management. You’ll need to create a list of the expected incomings and outgoings of the business over the next 12 months to achieve this.
Forecasting is useful as it helps businesses to plan ahead to make certain there’s enough cash coming in to pay debts as they fall due. A regularly updated cash flow forecast identifies peaks and troughs so that you can make sure that a loan is in place for when cash flow is tight and you need cash fast.
2. Factoring
If your business sells products and/or services to other businesses and is struggling to maintain healthy cash flow, raising finance via outstanding invoices could provide a lifeline for the business. Factoring companies help SMEs that are short on capital by releasing the value tied up in the sales ledger. Raising finance in this way also speeds up the payment cycle to create a steady and predictable flow of cash running through the business.
3. Clear payment terms
It’s vital to set clear payment terms with new customers to know exactly when your business will get paid. It’s tough to manage cash flow effectively if you’ve no idea whether a payment is overdue. Establishing clear payment terms will alleviate frustration for you and your clients. You could also consider charging a penalty if clients fail to pay on time.
4. Technology
It’s much easier to manage the company’s cash flow using technology. Cloud-based accounting saves time and helps you stay on top of finances by viewing accounts across a number of devices. It also removes the time and effort that used to be involved in backing up data.
There are many tools and apps available that have been designed to keep track of businesses expenses. Input the details and the app or online service will do the rest for you. Once you are on top of cash flow, you’ll be in a much better position to create a stable platform for business growth.
5. Eye on the ball
Always try to identify potential cash flow issues in advance by regularly updating your cash flow forecast, monitoring market conditions, keeping a beady eye on customers who may be having problems and taking action as soon as an issue arises. Staying on top of your cash flow is the only way you’ll be able to deal with these problems effectively.
Tony Smith is director at Business Expert.
