Staying on top of your cash flow is crucial for your business to succeed. Businesses go bust in the long run through lack of profit, but in the short term, they fail because they don’t have enough cash to pay their bills. Cash flow is the life supply of any business— more firms go under because of cash flow problems than anything else .
Thankfully, the principles are pretty straightforward. Here are five places to start tackling cash flow challenges:
Setting up a good credit control system needn’t be complicated—it’s really all about getting paid as soon as possible—but it’s essential to put some procedures in place. The basics include setting clear credit limits and payment terms for your customers, sending out invoices promptly and firmly chasing all debts when due. You should also stay on top of customer payments and be quick to stop offering credit to bad payers.
Put simply, sales forecasting is all about predicting what’s ahead so you can prepare for cash flow peaks and troughs. As soon as you have a month’s sales behind you, you can start forecasting cash flow—using your market knowledge, think about your pricing, the level of competition, the state of the economy and so on, to work out demand. Remember it’s better to be overly cautious than optimistic—that way, you’ll hopefully avoid nasty surprises.
From cash flow challenge to smart money management
90% of business failures are caused by cash flow problems. Discover how to go from having a cash flow challenge to smart money management.
Cutting unnecessary costs and spending
When it comes to preserving cash flow, think lean and mean. Scrutinize every item you buy, know exactly where your cash is going and always get value for money. Work out what you really need, too— those office plants might look nice, but they won’t grow your business.
Negotiating good terms with suppliers
It’s always worth investigating to see if you can extend payment terms with suppliers. After all, if you can settle your bill in 60 days or even 90 days rather than 30, you get to hold on to your money for longer and this helps regulate cash flow in a business. If you’re thinking about making a big order, don’t miss the chance to negotiate—could you set up a regular payment plan for example rather than paying off outstanding amounts in one go?
Monitoring stock closely and only ordering what you need is essential to avoid outlaying unnecessary cash. Work out what sells quickly and profitably in order to keep income steady and make sure you’re not tying up funds in slow-moving items that are difficult to shift. If you’re looking for a quick cash injection, try selling off old or outdated stock at a cheaper price.