Every small business owner understands that cashflow is the mainstay of their organisation. In fact, one of the main reasons small businesses fail within the first 12 months is by not managing their cash flow effectively.
Cashflow is the money that moves in and out of your company each month. Cash comes into the business via payments from customers and sales invoices – and leaves the business in the form of ‘accounts payable’ for expenses such as rent, stock, paying staff and other overheads.
In order to grow a successful business, you need to maintain a healthy cashflow, not just by bringing more cash into your organisation, but by also keeping a close eye on your cash outflows too.
If you are struggling with cashflow issues, read on for our practical advice on improving the day to day income and expenditure of your business.
Get paid promptly
You may feel we are stating the obvious here, as we’d all love customers who pay us on time! If you have customers who often take your payment terms a little too liberally then there are ways to encourage them to pay you faster:
- Send out your invoices promptly. If you tend to send out all your invoices in batch each month it can hurt your cash flow. As soon as you’ve completed the job, issue the invoice and keep a regular stream of payments entering your company account.
- Follow up regularly. Send a statement at the end of the month and keep in regular contact with the customer. Make sure your contacts database is up to date so you get through to the right person who can action your payment. Chasing for payments is no fun, but it’s important to remain professional and polite. A friendly reminder goes a long way!
- Offer an early payment discount. If your customers regularly push it to the wire before settling their bill, then offer them a small discount in return for an early payment, it might just be the nudge they need to release your cash a little bit sooner.
We all have bills to pay…
…and there is no escaping the fact. We can’t make your bills go away (we’re bookkeepers after all, not magicians) but there are ways to manage your cash outflow to your advantage.
- Make the most of early payment discounts: Just as you can offer early payment discounts to your customers, make sure you ask your suppliers it they can do the same for you, every little saving you make will boost the amount of available cash within your business.
- Work on your supplier relationships: Trust and integrity goes a long way in business. If you are struggling with making a payment and have a built up a good rapport with your supplier, they will be more likely to agree if you need to ask for a payment extension.
Reassess your operating expenses
Successful cash flow management also means keeping a close eye on your business expenses and making reductions where possible.
Remember, it’s not just about saving cash. Saving time and working more efficiently will have a positive impact on your cashflow too. For instance, investing in an online accounting system will automate many manual tasks which can save on salaries and overtime payments and give you an instant snapshot of your cashflow situation at the click of a button.
If you are experiencing lean months (which many small businesses are due to the COVID-19 pandemic) then use this time to streamline your business expenses. Can you get a better deal on your phone and broadband charges? Are you getting the best deals from your suppliers or vendors? Could you find a cheaper alternative?
By taking a deep dive into where your money is going each month, you’ll be in a better position to make decisions that will ultimately improve your cash flow.
Looking for more cash flow advice?
GB Bookkeeping Services understand that the management of incomings and outgoings within your business is crucial. Our team of experienced bookkeepers can provide support to help you manage your cash flow to ensure business continuity and better plan for the year ahead. Speak to our team on 07403 784587 or email us to book your free bookkeeping health check.w