Especially at times like these, one of the biggest challenges businesses face is keeping track of their finances and maintaining cashflow. It’s an issue every business from the smallest start-up to the largest corporation has to deal with.
Lack of funds at important moments not only stunt your ability to grow it can put your business at risk.
Here I take a closer look at ways to better maintain cash flow and give your business the room it needs to thrive and survive:
1. Keep On Top of Your Finances
Smaller businesses tend to have trouble tracking their finances more than larger ones which have a formal infrastructure in place.
If you can’t afford a finance director or accountant, you might spend a lot of your own time doing that job personally or you might think it’s not that important.
It is vital to have a clear idea of where you currently stand. It’s important also to regularly develop forecasts for what is likely to happen with your finances over the next few months and years.
You can download our FREE Excel-based cash flow forecast template to help!
2. Reduce Payment Times
One of the struggles businesses face is getting customers to pay their invoices on time. Bills that become overdue are likely to build up and, in some circumstances, means your cash flow dries up if something isn’t done.
There are several ways to streamline this process and improve payment times. First, you should have clear payment terms (30-day maximum is standard). You should also have a viable process in place for chasing up late payers.
Another solution is to make it much easier for your customer to pay. Online invoicing which simply requires a click to your payment section is quicker than a customer paying by cheque which can take a while to clear through the bank.
3. Manage Stocks Better
Businesses often build up too much stock. It costs money and if you’re not selling that stock, a lot of your cash is tied up and of no use.
Better stock management means you can respond to need intelligently but also don’t have all your capital swallowed up and static. It’s a difficult balancing act but one that can make a huge difference to cash flow.
4. Build Relationships with Lenders
Many businesses need to loan money at some time or another. Whether you need a credit agreement or a sizeable overdraft, it’s useful to have access to ready cash when it is most needed.
That means building a strong relationship with your lenders that is based on trust and mutual benefit. Don’t get behind on repayments and keep your lender informed if things do go wrong.
5. Manage Your Outgoings
Understanding your business finances and maintaining cash flow is also about what you have going out. This includes everything from utility payments to employee wages. There are several ways that you can approach this to improve cash flow.
For instance, you might want to negotiate a better rate for your gas and electric contract, building rates or the frequency and amount that you pay your suppliers.
Small changes here and there should boost cash flow and it’s something you need to go back and review now and again to keep on top of.
6. Anticipating Cash Flow Challenges
The recent Coronavirus pandemic shows us that we can’t always anticipate what’s around the corner and often we don’t have time to plan for big events.
It’s a good idea, however, to play a ‘what if’ game and come up with scenarios where you might need better cash flow. These are not all about anticipating disaster either.
- What if you want to grow your business?
- What if a big new customer signs a contract with you and you suddenly need a lot more stock?
- What happens if that big customer goes out of business and can no longer pay you?
7. Building Cash Resources
This is not always easy, particularly if you are trying to get your business off the ground. It’s essential, however, to build up cash resources where you can and put these aside for those unforeseen problems.
Many businesses, unfortunately, don’t make cash flow an integral part of their ongoing business plan. It’s often reactive rather than proactive.
They accept cash flow as a part of running a company but do little to mitigate circumstances or ensure that planning is in place keep cash available.
Taking a more strategic approach, developing a plan and ‘keeping at it’ over time is vital. That means, for example, reviewing strategies and making changes with a specific focus on maintaining your cash flow.
Get your approach right and it should make a significant difference to your future growth and how robust your company is when ready cash is needed.