Cash flow is vital for a business of any size, whether you are a sole trading freelancer or a global corporate organization. It’s even more important, however, for small business owners.
Cash flow is king, and the lifeblood of your business, so it’s vital that you can control it, nurture it, and always have it available.
But how, exactly, can you make sure your cash flow is always in a positive state?
We’re going to take a look at some of the ways you can get to grips with your cash flow and ensure it is an area you never overlook.
The first step towards a healthy cash flow strategy is to focus on forecasting.
Many small businesses overlook this important task, and, unsurprisingly, it’s these companies that often fall onto hard times.
Your forecast will enable you to identify potential shortfalls in the near future and will give you time to act upon them.
Maybe you can extend your overdraft, for example, or get on the phone to your suppliers to negotiate a different payment structure.
Don’t forget, running into cash flow problems can cause serious issues for your small business, and you might enter a spiral of debt that can be incredibly difficult to stop.
If you are a small business owner, the chances are that you will already be aware of late payments, and, most likely, the impact they have on your cash flow.
It is vital that you put a robust system in place to deal with late payments so that you get your money as soon as possible.
There are automated systems that are worth investing in to help you deal with problem payers – look for software with 3 way matching.
You can also encourage people to pay earlier – perhaps by offering discounts for early payments, or, alternatively, charge them interest if they pay late.
OK, so we’re not suggesting that you pay late or withhold payment to suppliers completely. But it is important to hold onto your money for as long as possible.
It’s a real help in ensuring you have sufficient money to keep your business going. There are a few things you can do if you need assistance in this matter.
First, try negotiating better payment terms with your suppliers – perhaps the will be willing to extend your payment period. Also, make sure to create a purchase order to keep track of your orders.
And also consider whether paying a late cash penalty will actually be better for your finances than the cost of increasing your overdraft.
That said, one thing you don’t want to do is start annoying your suppliers – it’s vital to be transparent and honest about your finances with them.
Finally, one of the best ways of improving your cash flow is to save more money. Look at your business spending with a critical eye to ensure that you aren’t overspending in any area.
Even making sure everyone is turning off the lights every time they leave a room can help cut your energy bills.
Avoid impulse buying, too, and look for alternatives to buying any equipment brand new – there is a used market out there for almost anything your business needs, and it can save you significant sums of money.
So is your business doing some of these techniques to building up cash flow for your business? My business is currently doing this but I would like to hear how you are doing when it comes to cashflow in your business in the comments below.