Cashflow is king for small and medium-sized businesses. And managing cashflow effectively can mean the difference between a business surviving or going under.
And, in today’s cash-constrained economy, cashflow, like the right business insurance, is more important than ever.
It’s worthwhile first of all defining what cashflow actually is. It’s essentially a business’s ability to pay its regular bills. If your cashflow is properly managed it means you have enough income at the right time to pay those bills that need to be settled. So, cashflow is money your business has access to at any one time – what it isn’t is money in the pipeline.
Most of a business’s outgoings are generally foreseeable – things like wages, loan repayments, rent, tax, phone bills and so on. Being able to pay them is what makes for successful cashflow management.
Ideally, any business should have a constant inflow of cash that exceeds its outflow, but this is not always possible and most businesses will have dips and troughs, which is where the cashflow problems can begin.
So, how can a small business improve cashflow management? Here are 12 suggestions, all of which can probably be adopted by any type of business.
1 Send out your bill promptly. Getting paid promptly is the key to good cashflow management and that means keeping on top of sending out invoices.
2 Get your billing right. Make sure your business’s invoices are correct, properly sequentially numbered, have your company number and address on and specify exactly what payment is for, on what terms and have the right amount of VAT added. This is all vital, because if they are wrong, they will often simply be sent back and payment will be delayed.
3 Emergency cash. Have an emergency fund besides a normal cash float. Keep this money on deposit, but in an account that is readily accessible. Once any part has been used, make sure the business repays that money. This is rather like having insurance for your business’s cashflow. Treat this cash as an emergency resource and use it after all other cash avenues have been exhausted.
4 Put cheques in the bank fast. Deposit cheques immediately. Don’t wait until a set day each month. If customers still pay you by cheques – and some still do write them! - then pay them into the bank right away.
5 Get cash upfront. If you need to pay large outlays to complete an order - for example, for parts or materials - asking for a deposit against these materials is a good idea and will help with cashflow, especially if the work will be spread over a lengthy period. Again, staged payments may be an option in these circumstances also.
6 Cut your prices. Offer discounts for early settlement of invoices. This is a strong incentive for customers to settle invoices more quickly.
7 Use forecasts. This can be difficult if you are running a new business, but not impossible if some realistic assumptions are made. If you have an established business, look at the previous 12 months of trading and compare conditions. A 12-month forecast can give you a clear pattern of peaks and troughs in terms off cashflow, which can be a huge help when planning.
Of course, such a forecast must take into account money actually collected rather than work done, or products sold and invoices sent out.
8 Review forecasts. Most important, a forecast is only as good as the use you make of it. The exercise of drawing it up is not the job done. Reviewing it regularly and seeing if matters are proceeding as expected is the way it can be useful in alerting your business to problems. The chances are it will need constant tweaking because the reality doesn’t quite match the forecast. Even so, spotting a challenging cashflow period a few months in advance could be a business lifesaver.
9 Follow up on unpaid invoices. Don’t let things slide, instead promptly take action if money is slow to come in. Sometimes a gentle reminder, perhaps a phone call, is all it takes.
10 Spread costs. Think about paying for equipment by installments, or hiring equipment, to spread the cost. Capital outlay can be a huge drain on a small company’s resources and have a hugely negative effect on cashflow.
11 Meet your own deadlines. Be sure to deliver the service or product you are selling on time. If you don’t, then you won’t be paid at the time you have forecast.
12 Watch your overheads. Constantly look for ways to reduce costs. Saving money your business needs to spend regularly is probably one of the most obvious ways of improving cashflow, and yet many businesses wait until times are challenging before carrying out a review of costs. It’s just as important to look at ongoing costs when the business is doing well – that way you’ll be better placed to deal with any cashflow problems should they arise.
Visit Premierline Direct for more information on Shop insurance .
Shop insurance http://www.premierlinedirect.co.uk/shop-insurance
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