When running a business, it is vital that you are able to keep track of the amount of money coming in and going out of your business. An inadequate cash flow can have a devastating impact on a business and if left unchecked poor management of your money can lead your company to failure.
One of the biggest mistakes people make when balancing their books is forgetting that profit and cash flow are not the same thing. Whereas a business can generate a large profit margin and experience positive growth, if your money is tied up in stocks, you might be unable to pay your suppliers, and this can damage the reputation of your company.
However, there are steps that you can take to avoid a cash flow crisis. So, let us discover 5 tips to help your business make better cash flow decisions.
- Create a Cash Flow Forecast
Understanding when revenues can be collected is a fundamental aspect of managing a comprehensive and effective cash flow. Set targets for the next 6 to 12 months so that you can keep track of your finances and avoid encountering any shortfalls.
Start by setting up a simple spreadsheet listing your monthly income and any regular outgoing costs. Then, factor in any fixed and variable costs. For instance, your heating costs are likely to rise during the colder months. Accordingly, each and every item must be accounted for.
- Keep an Eye on Your Invoices
It might seem intuitive but keeping on top of your payments is crucial. Always send your invoices promptly and do not forget to chase up any overdue bills.
If you do not already do so, now is the time to set out clear payment terms with your suppliers. 30 days is generally accepted as the standard, but your own experiences might vary.
Make notes of when you are due to be paid for a product or service and flag up any irregularities or delays. Customers that continually miss payment days might be on the verge of collapse and your own business and cash flow have to come first.
- Manage Your Stocks Efficiently
Similarly, if you sell products, managing your inventory can help you to keep your cash flow above board. Reconcile your stocks in line with your bank account so that you can monitor how many items you have left in stock and complete any repeat orders in a timely manner.
While holding too much stock can have a negative impact on your cash flow as all your money will be tied up in it, you also run the risk of disappointing customers if a certain product always flies off the shelves before they get a look in. Striking a balance is therefore key and should come with experience.
- Look Within
If you are experiencing consistent problems with your cash flow, there is always a chance that whoever is in charge of balancing your books might be responsible. Sometimes, the culprit might even be you.
As a business owner, accounting and other financial matters can be confusing and time consuming, especially if other elements of your company are expanding. Outsourcing your bookkeeping duties to an expert in the field might therefore prove to be advantageous.
Again, keep track of your inventory and try to see the bigger picture. Most business have good and bad spells and it is important that you do not allow yourself to feel disheartened when your cash flow does not always seem to work out in your favour.
- Anticipate Potential Problems
As with most financial matters, identifying cash flow problems before they arise can stop them in their tracks. A concerted effort to regularly update your cash flow forecast, to monitor market conditions, and to lookout for customers and suppliers that might cause trouble can help you to take appropriate action to protect your business.
Running away from your problems can only provide temporary relief from any uncomfortable situations, so stay on top of any issues and try not to be too alarmed so that you can tackle anything that manages to take you by surprise.
Of course, there are also plenty of financial experts that can help you with everything from identifying where you might be going wrong to advice about navigating any outstanding debts. Support is out there so do not suffer in silence.
Ultimately, by logging any money matters associated with your business carefully, correctly, and on time, your cash flow should remain in a healthy status. Above all, no matter what the size of your business, there are always moves that you can make to improve your financial position so that your company can continue to grow and experience success.