In this short vlog-blog I am going to share Five tips on how to manage your cashflow,
Why your business needs cash
Firstly what is cash? In other words what gets paid into your bank account, it’s factual, and is the lifeblood of your business. Secondly, why do we need cash. To clarify, your business needs for a whole bunch of things, typically, cash is needed for
- Paying your suppliers
- Buying equipment
- Paying off your loans
- Making sure you can pay your staff
- Keeping on top of your taxes
- Paying yourself, that’s got to be in there
So running out of cash, access to cash or poor cash flow is squeaky bum time.
Your business will survive if your cash flow supports it. However once the cash runs out, or access to it dries up then it is the end of the business road, do not pass go
It’s not for nothing that the phrase “Revenue is vanity, profit is sanity, and cash is reality”, rings true.
It’s good business practice to have a good cash flow management strategy.
Include the following five key elements:
Manage your profitability
Evaluate your current pricing and profitability on your products and services, look at your sales mix, where efficiencies can be made and where your costs are being spent. A decline in profitability can be caused by an increase in costs and no increase in revenue, an impact of discounting or a change in the mix of goods and services provided.
Produce a cash flow forecast
Produce, manage and monitor your cash flow forecast. In the same vein prepare your forecast on at least a rolling twelve-month basis. Your cash flow forecast should address three important areas
WHEN do you receive and pay cash?
WHAT do you receive and pay cash from/to?
HOW much do you receive and pay cash from/to?
Above all make sure you have an effective credit control policy, don’t adopt the ostrich look. Likewise set out reasonable payment terms and do not be afraid to ask for partial or full payment up front. For example payment terms can be up front, on delivery, or several days from invoice.
You may not feel comfortable doing it but keep on top of late payments and chase. Send reminder invoices promptly and follow up with a phone call if needed.
Have a good accounting system
If you have regular inflow and outflow of cash, you can’t manage it in your head. Keep accurate up-to-date records of every invoice and transaction. Online (cloud) software like Xero will make this easier, so consider investing in a package if you haven’t done so already.
When set up and managed properly cloud accounting like Xero will give you and your business up-to-date and current financial information on profitability and cash flow. Likewise digital accounting is a powerful ally in keeping on top of credit control and How to manage your cashflow.
Make a contingency plan
Lastly in my Five tips on how to manage your cashflow. An overdraft or credit card facility can help to bolster any shortfall, but if your plan is to rely on these in the event of a cashflow problem, ensure your bank is willing to provide them, particularly at short notice.
And remember – you aren’t in this alone. Talking to your accountant or business advisor about the best way to manage cash flow can help you to build a better business.
Free webinar on cashflow management
- Do you struggle with cash flow?
- Are you worried about your finances?
- Are you a fast-growing business that is struggling with keeping the cash moving?
- Does your business have an unpredictable sales pattern?
- Do you know how much money will come in and out of your business and where that leaves you ?
If you’ve answered ‘Yes’ to any of these questions, then register for our FREE Webinar. Take charge of your Business Cashflow with the ABC Method.
I hope these Five tips on how to manage your cashflow proves useful. How to manage your cashflow is a need to know for any business, whatever size, type or shape. Get in touch with us to see how we can help you with figuring out and managing your cash flow. For more business and finance , news, advice and tips, don’t forget to watch our weekly broadcasts, listen to our weekly podcast I Hate Numbers.