Any business lives and dies by its cash flow – this isn’t the same as its profit margins, which are more difficult to grow and which don’t cover the money going out in addition to the money coming in. A cash flow has to be calculated to the minutest detail in order to cover salaries, pay for supplies and invest in improvements to the company’s infrastructure – as long as the cash flow is being properly managed, profits can be in the red but the company can still function properly.
If the cash flow is not managed properly, the company will not survive for long, and if you’re a small business needing to squeeze every penny you can out of your cash flow, your survival time will be even shorter.
How can you avoid making cash flow mistakes, though?
Forecast your inflow and outflow
The best thing you can do is to use past events and current information to forecast what your inflows and outflows of cash are going to be from month to month. Predicting where your inflow and outflow streams are going to be located helps you to calculate the available cash you should have at any one time, as well as anticipating any shortfalls that might need to be planned for six months down the line.
Make it easy for people to pay you
The easier it is for people to pay you, the sooner they will do so. Utilise the technology that is available to you in the form of PayPal and other online systems to allow customers to pay in whichever way they see fit – the more options they can take advantage of, the quicker they will complete the transaction and inject a little more cash into the business.
Similarly, be clear about payment terms from the outset – this will ensure that customers know what is expected of them, and should always pay in time. Being clear about when payment should have happened by will also help if you have to take anyone to court over non-payment.
Stay on top of your outgoings
You should always know what you’ve got coming out of the business at any one time so that you’re never surprised in that month when you inevitably need to make an emergency cash withdrawal and you can’t afford to do so.
An Excel spreadsheet with everything (including bills for overheads like electricity and water) listed on it is the easiest way to keep on top of your outgoings. You can also customise it to alert you when your outgoings outstrip your incomings.
Build strong connections with vendors and lenders
Relationship-building with suppliers and banks is also an important aspect of improving a company’s cash flow. Vendors naturally want to be paid as soon as possible in the same way that you want your customers to pay you quickly – however, paying too early can harm your cash flow, so it might be beneficial for you to try and delay payment while still remaining within the terms of sale. If you can’t pay on time for any reason, contact the vendor as soon as possible to explain and prevent damaging your relationship, which might affect future dealings.
Similarly, building good credit ratings for the company using a business-specific credit card will demonstrate to the bank that you are managing the company responsibly and offer you some breathing room if you need it.
Improve your stock management
There’s nothing more frustrating than having cash tied up in stock that you can’t shift. Learn from your mistakes and try to invest in stock that reflects your daily sales figures – if something’s selling quickly, replace it quickly to meet demand. The items that generate the most revenue are the ones that should always be in stock in order to continue generating a regular cash inflow.
Thanks to the Guest blogger:
Hi, I’m Yasmine Bachir. I am a Content Writer and Researcher for STA International. I work with experts in order to produce content that I hope my readers will receive valuable takeaways from. It’s great having a job which is also a passion and I always hope this comes across in my work.
