Managing cash flow is one of the keys to your business' viability and success. Clearly cash is needed to take care of all your day-to-day costs like bills, rent, paying staff, buying goods and services, and other necessities. But what happens if you run out? How can you guard against the day when you don't have the funds to keep going on a daily basis, despite having money owed to you from work already done or goods sold?
These five tips may help to ensure you'll always be able to meet your obligations.
Stay on top of invoicing
Invoicing is one of the key foundations of good cash flow management. No cash will come in until an invoice has gone out. So as soon as you've completed a service or delivered a product you should invoice your client. Get into the habit of doing it at least weekly, or even daily if there are many transactions to take care of.
Sometimes, when quoting or agreeing to a big job you can ask for a percentage of the job to be paid up front. This can cover costs, wages or equipment and stock that might be needed to start and complete the work. If it's a job that will stretch out over time, you can also ask for payments as key milestones or dates are reached to ensure your costs are covered.
Keep your eyes on the cash
Monitoring your cash flow is an essential method to help avoid any stress created by cash shortcomings. The first thing to do is to know how much cash is outstanding in current invoices so you know how much is incoming. Look at who should be about to pay and, more importantly, who hasn't paid yet. The sooner you send a friendly reminder, the easier it is likely to be.
The second thing is to prepare regular cash flow projections and closely monitor your outgoing expenses, overheads, stock levels and so on. Maybe there's a place you can trim your costs. This is where a good accountant or accounting software can help, which is why it's our next tip...
Keep accounting easy
Don't waste too much time trying to get your head around all the numbers. Expert help, whether it's an accountant or good accounting software is, in our opinion, worth the investment.
Your own software system is a great way to always know your cash position in an instant and can help you with your projections. If you have a big job coming up, it's vital to know if you have the funds to pay extra staff or buy more goods or equipment. You don't want to be caught out with not enough cash to make the most of an opportunity. So it's good to build up some working capital for this.
Chase up what's owed to you
Unpaid invoices are essentially cash that's yours, that you don't have yet. Recovering outstanding debt is a vital part of a sustainable business. A simple tip is to make your payment terms shorter. If it's currently 30 days, make it two weeks. If you're on two weeks, make it one. As soon as someone misses the date, send them a friendly reminder. Always try and keep it nice. You don't want to put them offside and miss out on repeat business. If reminders don't work, pick up the phone and speak to them. It's always harder to ignore someone when you're speaking to them. If this fails and you have quite a few outstanding invoices, consider using a debt collection agency to help.
Explore business finance products to help out
Cash flow is so important to all businesses, so lenders have created many different finance products that can help.
Invoice finance is like a cash advance based on money you've already invoiced your customers, without having to wait for your payment periods.
Overdraft can give you cash in your back pocket if and when you need it.
Vehicle & Equipment finance allows you to buy essential items while preserving your working capital.
When it comes to finance to help you control your cash flow, we can be a great help to your business. We'd be happy to talk to you about any finance products that may be right for your business.