8 steps to improve your business cash flow
Your cash flow is the life blood of your business. It represents the amount of money coming into your business versus the amount going out. The theory behind good cash flow management is pretty simple; you need to have more money coming in than going out.
Sounds straight forward doesn’t it? Yet, cash flow problems are one of the main reasons that small businesses go under.
By following these 8 steps, you can stay in control of your cash flow and your business.
1. Create (and stick to) a realistic budget
This allows you to plan ahead. With a clear and realistic budget, you’ll know what money you need to collect each week or month in order to maintain a positive cash flow. By combining your budget targets with a good credit control process and updating it regularly, you can give your business the best chance of a healthy cash flow.
2. Do your due diligence
Before working with a new customer or supplier, make sure you check their ability to pay you! Understanding the financial status of your potential customers is absolutely key when it comes to credit control and consequently, cash flow.
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3. Set clear payment terms
Your credit control relies on clear payment terms. If you haven’t agreed a payment due date, then how will you know when a payment becomes overdue? Set expectations up front, build them into contracts and ensure you follow through with a robust debt collection process.
4. Make it easy to pay you
People don’t like hassle – in fact they’ll often go a long way to avoid it! By making it as easy as possible for your customers to pay you, you can prevent a good proportion of late and missed payments. These days, online payments are a good way to go. It’s convenient for the customer, means payment can be tracked and ensures the funds arrive in your account as quickly as possible.
5. Staff training
Putting processes in place to improve your credit control, your budgeting and your customer due diligence can have a significant impact on your cash flow. However, if your staff aren’t trained in these processes then the system will fall down and your cash flow with inevitably suffer. It’s key to make sure they know why proper invoice and payment management matters to the business, and ultimately getting their salary paid each month.
6. Don’t put all your eggs in one basket
Try not to be too reliant on just one client or revenue stream. By diversifying, you can protect yourself from cash flow problems should that one client go under or your single revenue stream hit problems. If you’re over-exposed with one or a handful of clients, look to ways to minimize the risks with regular structured payments or customised agreements.
7. Regularly review your costs
A healthy cash flow isn’t just about the money coming into your business; it’s also about the money going out. Make sure you conduct regular reviews of your spending to identify areas where you may be able to be more efficient with costs.
8. Make use of technology
There is a huge range of accounting software out there that can take much of the effort out of managing your cash flow. It both saves you time and allows you to manage your business finances from your laptop, tablet or phone. The software needn’t be pricey and will often make up for its cost in time saved (not to mention stress!). Tools such as Ledger Manager can show you exactly where your outstanding money is and highlight the top debtors to your business.
I hope you’ve found these steps useful. Let us know what your cash flow management tips are and share your story below!
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