Whether you’re the owner of a small startup company or have many years worth of experience, having a steady cash flow is vital if you want to keep your business afloat.
While it’s every business owner’s dream to see their business go from strength to strength, the threat of insolvency can creep up on you unless you are running your finances efficiently. Insolvency practitioners Hudson Weir have put together some helpful tips to help you improve your business’s cash flow.
Stay on top of your finances
The first step to improving your cash flow is to have an in-depth understanding of your business’s financial movements. Ensuring you have up-to-date information and data is essential if you want to keep a finger on the pulse.
Having a good handle on where your business is heading in the future will also mean you are more prepared for the costs that come with growth and expansion. While an increase in sales and income is desirable, it’s important to remember that with this you might need to take on more members of staff, or open up a bigger workplace.
Performing a good business forecast will help you keep abreast of your cash flow in advance, especially if you operate them on a rolling 12 month basis. This way you’ll be able to identify when to expect a surge or decline in sales and when payments are due and when they are due out.
Strategize for the quieter months
It’s normal for a business’s income and expenditure to fluctuate, which is why forecasting is so important. For some businesses however, the annual highs and lows will be more evident due to the changing demand for the goods on offer.
If for example, your product or service is more popular during a particular time of year, the chances are you will face a substantial dip in your cash flow during quieter periods. Being well prepared for these quieter months is vital if you want to avoid insolvency.
Have a buffer
Having a backup contingency fund for any surprising or unexpected costs is always a good idea. Startup businesses might struggle to put aside any money at first, but having a buffer as soon as you are able will also help compensate for when your sales take a hit during quieter times of the year.
Have a good debt recovery procedure in place
While having a strong credit control procedure in place is essential for good cash flow management, it’s also important to have a debt chasing system in place to recoup any outstanding balances owed to you by clients.
Make payment dates clear on invoices, use automatic follow up emails or calls when payments are overdue, charge late fees and be open to payment plan negotiations. Being on top of outstanding invoices will make a big difference as the longer you leave it, the less likely you are to recoup money owed, which will have a negative effect on your cash flow.
Establish good relationships with clients and suppliers
Nurturing your relationships with both clients and suppliers can have a positive impact on your cash flow. Providing a reliable service to clients will encourage more business, while Working with clients you know and trust will ease any anxiety you may have over whether they will pay on time.
Establishing a good rapport with your suppliers can also help improve your cash flow as it may lead to better deals. They may also then be willing to negotiate on your payment terms if your business is struggling financially.
Cut costs and spread payments
Improving cash flow can also be achieved by restricting any purchases to those that are business critical, and spreading out payments rather than using a lump sum of money. Leasing and hire purchase for things such as company cars and machinery are good options if you want to maintain a cash stream for day-to-day operations.
Motivate your staff
If you’re worried about the threat of insolvency, make sure everyone working for you is on the same page. By motivating employees with targets and goals, you should see a surge in their productivity, whether that’s in sales or debt recovery.