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Advice for Managing your Business’ Cash Flow

Excellent cash flow management is a vital aspect that every new and small business has to get right, in order to get a good start in the world of business.

The most common reason for a lot of new companies failing is due to not having enough cash to keep them ticking over in the short term, while lack of profit will see them disappear in the long run.

The basics of business cash flow are relatively straightforward; your company needs more money coming in than going out. This is achieved through collecting money owed to your business from clients and customers on time and using it to good effect. If your company needs to know how to improve cash flow, then the following points will help.

Create Cash Flow Targets

The main aim is to maintain a steady influx of cash that will cover all your business’ expenditure and preferably leave at least some left over in profit. Examine your company’s monthly budget and outgoings to work out how much cash will be required each week, and set this as a minimum target.

A cash flow forecast that is updated weekly can be used to form a good financial outlook for the next six to 12 months. Setting targets gives the solidity of something to aim for, and makes it a lot easier to review whether your business is managing cash flow in a successful manner.

Form a Quick and Easy Payment Method

One of the common reasons that makes it hard to manage cash flow for a lot of businesses, is when clients do not pay on time. There are all sorts of factors that can slow down the process, from the client being in financial difficulty to payment terms being unclear.

Make this as easy as possible, by invoicing clients quickly. It’s no use having to wait up to three months for invoices to be paid, as you will likely need the money to reinvest immediately. Also, make the payment process simple, with online options usually the best choice and much quicker than cheques, for example.

Use Technology

As well as using online banking to improve cash flow, technology has other benefits that should be incorporated into your process. Cash flow spreadsheets are a great organisational tool, and along with other important data should be backed up and stored in cloud sites.

Using such technology provides plenty of flexibility, and allows more than one person access to important information. There are also many pieces of accounting software available that can make working out cash flow, incomings, outgoings and more across every area of your business a lot simpler.

Improve Receivables

By improving the speed with which your company turns materials into products, or delivers the service it provides (turning inventory into receivables), you can improve the cash flow situation of your company. There are a few ways to do this:

  • Give discounts to quick-paying clients
  • Ask new customers to place deposits down on orders
  • Follow up on slow invoice payments
  • Get rid of old inventory in any way possible
  • Create a cash on delivery policy, rather than banishing slow paying customers

Don’t Focus on Profit

It can be too easy for new businesses to focus solely on profit. This is what they will base their success on, but it is more important to focus on and manage cash flow in the early stages. Profit margins are likely to have been drawn up, but having cash flow forecasts are just as important.

Plus, having your cash flow in order should result in profits being met. Good cash flow is essential for survival, which should be every new and small business’ first priority, with improving profitability coming further down the line.

Hire a Cash Flow Monitor

To ensure that cash flow doesn’t get ignored, hiring or designating someone with the responsibility of overseeing its progress is a good idea, whatever the size of your business. It could simply be responsibility given to a certain employee, along with their everyday role, or their sole position, depending on the company’s size.

They can help draw up targets, inform others when they have been met, areas to cut back on and deal with clients. All these ways to improve cash flow should be implemented in your company to help it grow and become a profitable business.