Cash flow is considered as the lifeblood of every business. Running out of cash is the biggest nightmare for any business entrepreneur. Every business requires sufficient cash to keep their business running, and small business entrepreneurs in particular sometimes struggle with maintaining a healthy cash flow.
You cannot take your business to the next level without proper income, so it’s important that you have proper cash flow for your business to survive.
Importance of cash flow management
The success or failure of your business totally relies on how you manage your assets. Without proper cash flow a business cannot survive in the market for a long time.
A positive cash flow shows that you have discovered an appropriate balance between the cash your business is acquiring and what it’s spending. A negative cash flow, on the other hand, signifies that your costs are too high or that your clients aren’t paying their solicitations in a convenient way. Monitoring your cash flow can enable you to recognise trends and potential inconvenience spots inside your budget or plan of action.
Cash flow management tips:
- Have clear instalment terms and conditions with the client including penalties for non-instalments.
- Complete a monthly balance sheet to indicate cash flow.
- Follow up on non- payment promptly.
Below given are some cash flow management tips for business entrepreneurs:
- Monitor your cash flow
It’s better to prepare yearly, quarterly and monthly income projections and regularly watch your operating costs, overheads, stock levels, obligation collections and profits.
By knowing the status of your cash flow you can easily manage it. This simply means that you should observe each and every area of your business where you have invested money and check what amount is being spent against the revenue being generated.
After getting a rough idea of your business’s cash flow, you can look for some better ways to improve it.
- Manage your inventory well
Purchasing too much inventory for your business can eat up your available cash. If you are a start-up business, it’s better to buy as little inventory as possible.
Also, you can maintain a positive cash flow by overseeing stock levels and consistently cycling out all of the old stock.
- Send invoices instantly and offer early payment discounts
It doesn’t matter whether you are selling cheap or expensive retail items, make sure that you send invoices to your customers within 24 hours of a deal being struck. This way you are giving your customers enough time to make the payment.
Also, you can incentivise your customers to make timely payments by offering them discount vouchers, as it will help you to manage your business’s cash flow.
In order to manage the cash flow of your business, it’s important that you re-examine your costs at regular intervals. This way you may find cheaper options for some of your expenses. For instance, you can request your insurance agent to search for a policy with a lower premium.
Also, ensure that you are not spending your money on unnecessary expenses. Dispose of costs that you don’t need and consult with your vendor to get lower prices or longer instalment terms.
Build relationships with lenders
It’s difficult to get a loan from the lenders if your business is not doing well. So, if your business is doing well start developing a relationship with your lenders. Don’t wait till it’s too late. Also put resources into your records receivable, stock and equipment, as these three factors will persuade your lender to approve you for a loan.
If you maintain a good relationship with your lender from the start, they will help you whenever you want a loan for your business. If slow-paying clients are making it difficult for you to maintain cash flow, you should consider utilising a factoring company to help enhance the cash flow of your business.
In case, if you are taking a loan for your business, ensure that you have not been mis-sold a PPI policy along with it. In the UK millions of customers have been mis-sold a PPI policy along with a loan. Make sure that the same does not happen to you.
- Keep a cash reserve
You never know when tragedy took place so be prepare for unforeseen costs by keeping some extra money in a small business cash reserve. Get ready to face some unexpected costs by putting some cash aside in a small business cash reserve. It can serve as emergency funds for your business.
Keep this cash reserve in a business savings account. Also, remember to withdraw the amount only in cases of emergency.
Cash flow problems in small businesses
No doubt, there are some cash flow management issues that are very common in majority of small businesses. It’s important that you first define your problems.
Below given are some cash flow issues in small businesses:
- Failing to keep emergency business cash reserves.
- Not making a business plan for cash flow. The business plan of your cash flow should comprise the ways you will manage with a gap between your active and approaching income.
- Not tracking the cash flow projections of your small business carefully. It’s important that you check your incoming and outgoing cash flow once a month as it will help you in getting a clear picture of your cash flow.
- Charging excessively can scare your clients, but on the other hand, charging less can lower your instalments. Also, your customers won’t rave so much about your items, which will result in a decline of business.