Your business is growing rapidly, and profits are anticipated to keep increasing.
This is great and shows that your business is heading in the right direction. However, it is important not to let your guard down, as even a profitable business can be hit with problems if there is not enough money coming in.
We have put together 10 tips which will help you manage your cash flow.
Carefully look at your cash flow.
Most businesses have cycles of highs and lows, as well as different trends. For example, clothing stores may see a rise in coat sales during the Autumn. Or a stationery shop may see increased sales at the beginning of the school year. Analysing your cash flow will highlight these cycles and can help you plan better for these times.
If you send out an invoice as soon as you make the sale, this will help money come in quicker.
Receive cash quicker.
One of the ways to do this is simply to change your payment terms, which will shorten your receivables and boost your cash flow. You could also offer a small discount to those who pay early and have in place procedures to chase up outstanding invoices.
Discourage payments by cash.
Encourage card or online payments instead which means that the money will be in your account within a day or two, rather than having to wait until cash or cheques have been banked.
Pay creditors later.
Speak to your suppliers and see whether you could negotiate longer payment terms. A good rule of thumb is to have your suppliers payment terms longer than your customers. This allows you to receive money quicker, while being able to pay out slower.
Use a credit card.
Using credit cards will also help delay payment, even if your suppliers don’t want to grant longer payment terms. However, be careful not to get too far into debt, as this will end up having a far worse effect on your cash flow.
Lease equipment rather than buying it.
Although leasing normally does end up being more expensive, this allows you maintain a steady flow of money in and out of your business. You’re only paying small, planned amounts rather than a large cash payment which you probably weren’t expecting.
Open a savings account.
Putting any extra funds to work in a high-interest savings account will allow you to earn a competitive rate of interest. Many business owners have also found that putting a little aside each month helps to budget for any tax or VAT bills.
Manage your stock.
There can be a lot of cash tied up in stock. So if you have large amounts that aren’t moving as they should, it’s time to move it on – even if this means selling it at a lower price than originally intended.
Increase your prices.
This is a scary one for many business owners as they worry about losing a sale if their prices are too high. However, it is important to experiment in order to find the perfect price for your product. Don’t undersell yourself, do some research and take the plunge!
Managing cash flow is all about having good processes in place and knowing how your business is performing. Here at MBS we want the focus to be on how your business is working right now, rather than only looking back at the point your accounts are prepared.
If you would like help growing your business and the support to objectively analysis your cash flow, take a look at our Focus CFO packages.