Is your cash flowing in the right direction?
Make sure you have enough money coming in to cover what is going out. Simple, right?!
Cash flow issues for the small business are a sure way to see your company in danger sooner than you would like. Managing your cash in and out is vital to any business but the smaller you are the tighter the controls needed.
Keeping tidy accounts from the off is the best way to ensure that you have a system in place that will stand you in good stead for the future. Systems don’t need to be complicated and long winded, nor do you need a degree in accounting. However, something that is simple and kept up to date will enable you to make your cash flow visible, anticipating any potential problems at the earliest opportunity.
Invoice promptly, the sooner that you invoice the quicker you should be paid. A Sage Pay study established that over £55 billion unpaid or outstanding invoices were owed to small and mid-sized business - a small percentage of this could be yours. Even a small delay in receipt of payments will create chaos with your cash flow. Make billing a priority!
Leading nicely on to the next point about tight credit control being an essential. Nobody likes to chase money, and many people do not feel equipped to take on this task. Setting credit limits and terms of payment will give guidance to the customers but there will be the unenviable task of chasing the overdue invoices. Before speaking to the customers, be sure of what you are chasing. Have copies to hand or on the screen in front so that if questioned you have the data available. Keep calm and be polite, ultimately you are owed the money and no-one likes being chased so be prepared for a frosty reception on occasions. Persistence is key, don’t make a nuisance of yourself but get a name and e-mail if possible and give them a nudge every so often.
Stock control and company expenditure is another area in which it is easy to jeopardise your cash flow. Monitor your stock carefully, only purchasing what is necessary. Build relationships with your suppliers to ensure quick availability should you need to purchase more. Only buy what you need, when the money starts to come in you might feel that you deserve that new computer, office chair or coffee maker. Perhaps you do, but try to keep your cash spending at an affordable level. As the business grows then you can upgrade without risking your cash flow.
Train yourself to spot the threats to cash flow. Reduction in turnover, increase in debtors and decrease in liquid cash are signs that your business may be starting to feel the pinch. Try to keep your creditors paid up and look at ways to increase your turnover. Don’t ignore the warnings- if it feels wrong then it probably is.
It is easy to get carried away when launching a new business, and even easier to get stuck in a rut with your old systems in a well-established company. To maximise your cash flow you should always look to run as lean an operation as possible - keep the invoices flowing and work hard to increase your customer database.