News and Insight
How can you optimise the cash flow of your business?
Posted on by Rich Wells
Estimated read time: 5 mins
Running a business can be a little like alchemy. You’ve got to source the best ingredients, in the right quantities. You’ve then got to prepare the ingredients, mix everything together properly and be able to repeat the process time and time again.
You need to be properly prepared, so that when the winter comes and fresh ingredients are no longer growing, you’re able to not only survive, but thrive.
Analogies aside, in order for your business to keep on ticking over, regardless of the season, cash flow is of pivotal importance. It needs to be optimised, and here, we’ll offer some advice on how you could do this.
It’s not just about raising your revenue
I know what you may be thinking, but revenue-raising activity alone isn’t necessarily the ultimate solution, although it’s certainly a piece of the puzzle. Other key actions that could contribute towards improving cash flow include implementing cost-cutting measures and improving your accountancy procedures.
Review your expenses
What are your biggest expenses? It’s perhaps surprising how much you could save if you sit down and really have a think about how much you’re spending in certain areas. For example, are you buying things on a daily basis that you could buy in bulk, at a discount? Even the little savings can all add up to leave you with a little more liquidity at the end of the month.
Review your staffing levels
Are you employing the right number of people in the right areas, based on your current needs? When recruiting, consider whether a permanent member of staff or a contractor is most appropriate.
Improve your accountancy procedures
A good starting point for this is to implement some credit controls and enforce the rules you’re setting. If your business experiences difficulties from late payments, then it might be prudent to consider a form of incentive for earlier payments, such as a discount. Alongside this, there could be a penalty for late payments, such as adding interest onto late invoices. Such moves, albeit carefully considered ones, can potentially encourage your clients to pay on time or even early in future.
Further to that, you can review a vast array of different practices, such as tax returns. Are there government schemes available to alleviate the pressure you face with some of the taxes? There are numerous key questions to be asking.
Plan and forecast
Related to the point above, you’ll potentially benefit from taking time to properly plan and forecast for not only your future needs, but your immediate ones too. Reviewing your sales pipeline, planned expenses and the like can help you align your needs to what you’ll physically have in the bank. Establishing your ability to service your debts before they’re incurred, can help a great deal with your decision making process in the first place.
Align your terms for payables and receivables
It goes without saying that ensuring you’re getting the best possible terms for you can help you to manage your cash flow better. If you’re getting paid on time and you have adequate time to pay your suppliers, you’ll probably be able to cope much better. While this can seem like a scenario fit for the dream world at times, it can in fact become a reality too. If you’re taking a proactive approach to ensure terms favour both parties, with clear communication of your position – and you’re speaking to the right people – why shouldn’t it be a reality?
Cash flow problems can be resolved
Cash flow problems, while a real nuisance, are often able to be resolved by taking positive steps. It’s important to remember that while your business may have been set up effectively and rigidly in the past, you can’t just leave it to run itself. Carefully examine processes, procedures, plans, models – examine everything that contributes to your overall business model. Break everything down into bite-size chunks and try to really understand it all. By doing this, you’ll likely make it easier to identify positive changes that you can make to help you better allocate your funds and optimise the cash flow of your business.
If you’re looking for additional funding, why not read our blog on seven types of funding for SMEs.