[vc_row][vc_column][vc_column_text]We’ve all heard the saying that ‘cash is king’ but despite the popularity of this phrase cash flow is an area of business that is often neglected.
Being able to effectively manage your cash flow is key to the long term survival of your business. It will also allow you to maintain enough working capital to operate through quite periods.
Your cash flow impacts on your future spending decisions and the direction your business is likely to take. So keeping your finger on the pulse at all times can help ensure you are making the right decisions.
As we head towards the new year, make it your goal to enter it with a cash flow plan that will help you achieve your business goals. Here are a few handy tips to get you started.
Plan and Monitor Your Cash Flow
A good cash flow forecast will help you to monitor when you have money coming in, and going out of your business. It can help you identify when you will have extra cash available or are likely to experience shortages, and also provides warning signs to avoid future financial problems.
Having a strong grasp on the financial forecast of your business will help you make decisions throughout the year.
Know Which Levers To Pull To Get More Cash In Or To Reduce Cash Out
If you need more cash consider revising your pricing, increasing your volume of sales and managing your debtors. Alternatively, reduce the cash going out of your business by revising outgoing expenses, inventory and staffing levels to determine whether you can make some savings. You may also consider refinancing your loans and selling any underused assets.
Increase Your Sales
Consider an advertising campaign to increase sales and grow your customer base. Marketing your business does not necessarily require a lot of money. For example, using digital marketing channels, like social media, can be a cost effective way to advertise and promote your product.
Tighten Terms of Credit
Late payments can spell disaster for many small businesses. There are important measures business owners can put in place to avoid problems with late or non-payments of debts. Having minimal exposure to debtors is good financial practice for business, and documented system and process will help you keep track of cash flow and control finances. Given your customers could be a risk to you cash flow, it pays to do due diligence on debtors and assess them before you start work.
In today’s economy, requesting payment from customers on short payment terms is a wise move. To avoid late payments, issue invoices promptly with clearly defined terms and conditions for payment. In Australia, payment terms are considered part of sales contract and operate under contract law, therefore failure to comply with agreed payment terms is a breach of contract. If your business provides a product or service that requires substantial cash or effort before you can deliver, consider asking for a deposit or milestone payment.
Make it as easy as possible for customers to pay you by offering them several payment options such as having your bank account number on your invoices, credit card options, and accepting additional payment systems [ie EFTPOS and PayPal].
Receiving payments faster will boost your cash flow. You may consider offering an incentive such as discount to encourage customers to pay early. If debtors are frequently late, negotiate a way to recover your money and evaluate if you should continue doing business with them.
Monitor Stock Levels
Practice good stock control by modifying the quantity and timing of your stock purchases to coincide with higher cash flow periods. Do regular inventory reviews and hold only the stock as required to run your business efficiently.
Reduce Your Outgoings
Effective cash flow management also means keeping outgoing payments to a minimum. Look for opportunities to save money by streamlining business practices and reducing operating costs, for example:
- minimise energy costs by installing energy efficient products or by undertaking same business activities outside of peak electricity usage periods.
- identify areas where you can reduce wastage or improve production efficiencies.
- review insurances, phone and internet service contracts when they become due for renewal to ensure you are getting the best deal.
- negotiate your lease with your landlord.
- negotiate with suppliers for better buying opportunities.
- rather than advertising across the entire metropolitan area, limit your exposure to areas located close to your base as servicing customers in your local area will help reduce travel time and fuel costs.
Build A Cash Reserve
Creating a cash reserve will give you the confidence and finances you need to grow your business and help you prepare for any unexpected expenses. It will also allow you to take advantage of strategic investment or opportunities to reduce costs [through bulk buying, for example].
Improve Your Financial Skills And Get Expert Advice
Many business owners, particularly in the early stages, struggle to understand their business financials. Expanding your knowledge and business financial skills can help improve how you manage your cash flow and business finances. Consider attending a workshop to improve your business knowledge and get advice from an experienced accountant.
Use Technology To Help You
If you are not confident with numbers, hire a professional accountant and use quality accounting software. This way, you will always know your cash position and it will help you to forecast your cash flow for planning purposes.
Many business owners are moving towards cloud-based solutions to improve their productivity and efficiencies. These accounting systems can make it simpler for business owners to get real-time visibility of their cash and reduce the time it takes to proactively manage and forecast cash flow.
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Contact RN LEGAL on (02) 9191 9293 or firstname.lastname@example.org if you, or someone you know, requires advice or assistance in relation to any aspect of debt recovery.[/vc_column_text][/vc_column][/vc_row]