Managing Cashflow
Reports and studies regularly highlight how much unnecessary time and money is spent by small business owners trying to manage their cash flow. While technology has made it possible for business owners to have a tight control on their cash flow and has simplified many of the day to day operations, it can still be a challenge for business owners to stay on top of their cash flow.
While for all businesses owners, cash flow will always be one of their main concerns. For new businesses which may not have a substantial amount of cash in the bank, it can be even more critical. Successful management of cash flow can be the difference between success and failure for many new businesses
A recent survey showed that UK SME’s are collectively losing almost £9bn every year as a result of the time taken to take care of their day to day financial planning tasks. Another study showed that more than sixty percent of business owners have to draw upon personal finances like a personal credit card to support their business through cash flow troughs.
With so many business affected, what can business owners do to avoid unnecessary cashflow squeezes and minimise the distraction from running their businesses?
- It is essential that you create a cash flow forecast. Map out your expected payments out and payments in and review it regularly.
- Set a critical barrier for your cash levels and make sure you are alerted when your cash levels break that barrier. Delegate the task to someone else within your business if possible.
- Make it easy for your customers to pay you, give them options to pay. Do you give them your bank details so they can make electronic payments? Or take payments by credit card?Can you set up direct debit facilities? Automating the process not only makes it easier and free up time, it will also make your cash flow more predictable.
- Don’t be a late payer yourself. Not only will it reflect badly on your company, you could incur unexpected costs and charges. Become a supporter of payontime.co.uk and work with other companies who have agreed to pay on time.
- Ensure that your contractual position with clients are clear from the outset. And make sure you credit check new customers. You want customers who will pay you and that know they have to pay you when expected. The essence of a good contractual relationship is that both sides have certainty. Make sure you know their exact name
- Can you free up cash flow on your balance sheet? Look at the cash tied up in stock and see if you can rationalise your stock. Do you have money tied up in unpaid invoices? The Credit Protection Association offers a credit management system that encourage prompt payment and reduce the amount of capital you have tied up in unpaid invoices. Nobody disputes that collecting debts is hard, and it is easy to put barriers in the way of asking for money. Sometimes people are simply embarrassed or anxious about making the request for payment or they are concerned they may lose a client by chasing too hard. However, by using a reputable collector, these hassles can be minimised.
If a company has poor cashflow and fails to address it then it can be at risk of turning insolvent, no matter how good the business idea looks on paper. It could have loads of sales and orders but if it is not turning that it to positive cashflow by getting the money in from its customers fast enough to pay for the employees and goods and services needed to fulfill those orders, then it could easily hit a cash flow crunch and be forced out of business.
However, by taking the steps above, Business owners can cut down on the stress of managing cash flow and set their business up for continued success.
James Salmon, Operations Director, 28 June 2017