Business is not so much about profit as it is about cash flow. This may sound a bit contrary to popular opinion, but think about it for a minute.
Cash flow is what allows you to react to changing circumstances and put processes in place that will allow your business to grow.
Without cash flow, you’ll have downtime where you can’t do anything until your next invoice is paid. With a constant reliable cash flow, you’ll be able to turn a great idea into a profitable business that grows from month to month.
And while you may think that there will always be money ready to be spent in your bank account – that really may not be the case.
Not all clients will pay invoices on time, so you might have to come up with creative ways to stay on top.
Here are a few cash flow management strategies to get you started:
5 Effective Cash Flow Management Strategies for Your Business
1. Focus on Cash Flow, Don’t Fixate on Profit
Cash flow is the lifeblood of your business, so it’s essential that you never lose sight of it. Profit is great and it’s ultimately why you got into business in the first place, but you need a steady stream of money coming in for your business to be fully operational.
By all means celebrate when one of your large invoices is paid and have your margins in the back of your head when you’re negotiating, but also think about the timeframes involved.
Agreeing to long invoicing times may help you get more customers, but it could see you outlaying a lot of expenses before you see any return on your investment.
Stagger your invoices so that the money coming in counterbalances the money going out and you’ll have the foundation for a successful business.
2. Seek Out Expertise and Experience
When you start your business it often begins with a single goal or a bright idea that pops straight into your head. This is the fun part, but there’s also plenty of serious stuff you need to have in order for your business to earn you a living.
Finding an accountant, one you trust and find easy to work with is one of those tasks, and it can make all the difference to your cash flow management strategies.
They will have the experience and expertise that you may not have developed yet when it comes to staggering payments and tax returns, so that you’re never caught short.
Take the time to find the right fit for your business and they’ll pay for themselves from day one, by providing you timely expert advice when you need it most.
3. Work With the Banks, Not Against Them
As bills and interest charges start to gather pace, it can be tempting to start viewing your bank as the enemy.
To choose the right bank it’s vital that you remember that they want you to succeed, if for no other reason than they stand to make more money when you’re successful!
Keep them up to date with your cash flow and discuss any foreseeable issues to avoid becoming overdrawn on your accounts.
They will often be more than happy to offer a bridging loan or a low interest overdraft as you get your business off the ground. This is not a sign of failure on your part, and provided you use the assistance sensibly, you’re not piling up debt with no end in sight.
The biggest companies in the world regularly do this kind of thing to strengthen their cash flow, so you’d be mad to ignore your options.
You should also devote some attention to the type of bank account you choose, as this can also have an impact on how easily you can access funds.
Don’t just go for the first option that is presented to you. Ask your accountant for advice, and explore different options before you make a final choice.
4. Keep a Strict Inventory
Cash flow will change as your business grows, and what was once a strong stream of money may be insignificant in a few months’ time, if your business doubles in size.
This is where an inventory can really earn its keep. By keeping an eye on the stock you hold, the premises you own, and the equipment you’ve bought, you’ll be able to model future cashflow.
In fact, banks and other lenders love it when you can show them what your cash flow used to be in relation to the here and now, as it’s a great way of highlighting your growth.
Show them a convincing projection for the next quarter and you’re far more likely to be approved for an overdraft or loan if you and your accountant decide that’s the way you want to go.
5. Streamline Your Payment Collection
We’ve all had those annoying customers who seem to take 3 months to pay a simple £100 invoice. The issue with this isn’t so much that it’s going to destroy your cash flow, it’s more that you can waste a lot of time and effort on a small invoice.
When it happens to large invoice that you’ve be counting on for a couple of months, it can be a seriously stressful time for everyone who works with you.
By adding a direct debit option to your payment terms you can ensure that there are minimal slip ups when it comes to receiving timely payment.
It can be all too tempting to agree to unfavorable payment terms to clinch a sale which is why it’s vital to stand your ground. Think about the bigger picture and your business will be all the better for it.
Running a business is a challenge at the best of times. At to that just a couple of less than stellar weeks, and you’ll soon be experiencing the stress all entrepreneurs are so familiar with.
In order to try and minimize it, try and implement some of these ideas. It may take you a while to get used to all the different terms and the best ways to get things done, but with a little practice, and a lot of research, you will learn to handle the financial side of business as well.
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