When it comes to managing and growing a successful business, cash is king! While you might plan to bring in a large profit over the next year, you will find reaching your goals difficult without the cash coming in to cover any expenses and costs.
No matter your industry, business size and the services or products you provide, maintaining a healthy cash flow is key to planning, budgeting for future growth and being prepared for any business fluctuations.
From staying on top of your accounts and collecting your receivables as fast as possible to slowing down your costs without damaging the relationships you have with suppliers, there are a few ways you can boost your cash flow.
1. Create a cash flow forecast.
First things first, do you have an idea of how much money your business will bring in and spend next month? What about over the next 12 months? It’s essential to first get a grip on how your cash flow is currently performing and where it is likely to go in the future.
Creating a cash flow forecast will help you offset uncertainty by predicting any potential peaks and troughs for your business’ finances. Often small to medium sized business owners aren’t prepared for the costs associated with growing your business quickly, however movements in your cash flow can be predictable if you plan ahead.
Your cash flow forecast should list any payments you expect to make over the next year – this might include equipment, wages, office rent, taxes and loan repayments. Next, list the income you expect to achieve from your services or products. Now subtract the cash going out from the cash coming in to determine how much you can expect to have in the bank at any one time. Keep an eye on your cash flow so you can track when your highs and lows are and better plan for bigger investments in resources or downtime for your business.
2. Speed up your cash flow processes.
Does getting paid on your terms and to your timeline sound too good to be true? As a business owner, you might need to become more ruthless with your invoicing policies to ensure you have the cash flowing in when you expect it.
Introducing a payment policy with strict terms and a shorter timeframe will help speed up cash coming into your business. List your payment terms clearly on your invoices and follow-up any late accounts. Make it as easy as possible for your customers to pay you by offering a range of payment methods. Also consider offering a small discount to customers who pay your invoice sooner or charge interest to any customers who pay late.
3. Negotiate payment terms with your suppliers.
If you outsource work to a supplier or contractor, you may find yourself having to pay their invoice/s prior to receipt of payment on your customer’s invoice. If this is not managed effectively and you don’t already have an emergency budget in place, you may find yourself in a challenging financial position.
It’s important to understand each of your supplier’s processes and, where possible, negotiate longer terms to provide time for you to bill your clients and collect payment prior to paying your suppliers.
4. Use an online tool to manage your finances.
While an Excel track sheet can work perfectly fine, it can also be resource-heavy. Invest in your cash flow by using a digital tool that will help streamline your financial processes. Tools like QuickBooks and Xero can help organise and automate your billing schedule, reducing your workload and allowing you to better keep an eye on what is coming in and what is going out of your business.
5. Improve your financial skills by getting expert advice.
Cash flow management strategies are critical for businesses, but they are often an ongoing challenge. While there are plenty of digital tools and resources that aim to help you tackle your cash flow needs, sometimes spreadsheets and templates aren’t enough. Accessing expert advice can help you to become more informed and make better decisions about the outgoing and incoming of cash for your business.