Reminders of keeping a healthy cash flow come thick and fast as we make inroads into 2018.
Cash is the lifeblood of your business which means balancing the financial obligations is an ongoing deal and your constant attention is required. With this in mind, I’ve put together a few pieces of advice to enable you to keep the figures afloat.
Cash flow analysis
Forecasting cash flow is an essential part of every business, so why not use technology to help you achieve full visibility? Software tools are now available that can flag up dangers ahead by analysing client payment histories set against how long you can put off making payments.
Key metrics such as accounts receivable and payable, credit terms and your inventory each influence cash flow. With analytical insight into each of these components, problems can easily be identified and solved more quickly.
Speed up receivables
Obviously, you can only have a healthy cash flow if you get paid, and there are a few ways you can speed up turnover on receivable income.
Money off for prompt or early payments and deposits on orders can get things moving, while credit checks on new clients can give you an idea of how likely you are to get paid on time.
Payment terms will also facilitate receivables. “Due upon receipt” is a commonly used wording but Net 10 (payment due within ten days, and Net 20 (within 20 days) or anywhere in between will get your money moving more quickly to where you need it to be.
It’s highly likely that you sell products and services through your website, so make sure that it’s working properly, and optimised for desktop and mobile device formats.
The most important part is enabling customers to pay you easily. Instant online card payment services such as Paypal support seamless and speedy cash transfers. Don’t be put off by payment fee, either; user-experience is a priority that holds the key to pushing sales up.
Stay on top of pricing
It’s easy to get carried away when growth occurs, but keeping a sober eye on your pricing and increasing costs will help you to anticipate cash flow problems.
While it can be tempting to withhold price increases at the risk of losing customers, small hikes are actually expected and will be respected by those who buy from you, so long as you inform of future changes in a timely, transparent and reasoned manner.
Just because you require certain specialist products and services from one merchant, doesn’t mean you have to stick with that supplier when it comes to more everyday items.
Remember that big savings can be made if you stretch your purchases across different vendors, industry catalogues or cheaper dealerships. Holding your eggs in more than one basket also means you’ll be better equipped to ride out any supply shortages that may occur.
When it comes to your own inventory, try not to exceed industry standards in terms of what and how much you need. Merchants will offer large discounts on bulk buying, but they have their own interests at heart, not yours. Conduct regular stock takes and always look out for ways to streamline inventory to boost cash flow.
Strive for highs, prepare for lows
Unfortunately, tougher times often outweigh growth periods for small businesses. To maximise cash flow and profit, keep your eyes open to nip issues in the bud, and negate their impact on the bottom line.
Banks can be a useful place to turn to in leaner times, but ensure that you go to your manager with a clear business plan in place to stand a better chance of securing the funds you need.
People you buy from will have greater interest in your financial health, so don’t be afraid to call in the favours and draw on your sound industry reputation should you need to renegotiate terms in order to free up cash flow.
And don’t panic. Cash flow issues are common to all small business owners – just remember there will often be many unturned stones beneath which will lie the answers you’re looking for.
As your organisation grows, your outgoings and incomes will fluctuate, testing your liquidity time and again. Taking time out to conduct a full analysis of your cash flow will yield clarity further down the line, helping you to ride out the bad times and put the good times to most effective use.
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