Cash is king, but just as there are good kings and bad kings, there good and bad ways of managing cash flow, the life-blood of your business. Get on the king's good side by applying the following best practices.
One way of controlling cashflow is to prepare and maintain a cashflow forecast. You can update it weekly so that you have an accurate cashflow outlook for the next six to 12 months.
Cash is king, but just as there are good kings and bad kings, there good and bad ways of managing cash flow, the life-blood of your business. Get on the king's good side by applying the following best practices
Setting targets is an excellent way to ensure that your cashflow situation receives the right amount of attention necessary. You will get a feeling of satisfaction and ownership when you hit and beat your targets.
It's important to establish clear payment terms from the beginning of any new business relationship. If you don't start off knowing what your payment terms are, it's difficult to know when you are going to get paid. If you don't know when a payment is overdue, you are not going to manage your cashflow.
It's a good idea to insist on payment within 30 days. Your staff need paying in 30 days and your suppliers also need paying in that time.
When you invoice is in your hands. It's best to invoice clients as soon as the work is done. If you wait two weeks after the work has been complete, it will take a further two weeks before that cash arrives in your bank account. Rather invoice by email so that it gets there at once and you have a record that you sent it.
Making payments as easy as possible is a good way to increase your levels of customer service. Whatever is most convenient for customers will also mean the money reaches you sooner. Online payments are the best option.
There is always a gap between when you invoice and are paid but there are ways to reduce the gap.
A particularly effective way is encourage direct debit as the normal way for debtors to pay you. It means you can scale up business without increasing the costs of collecting debt. It also provides a stable cash inflow for you to make payments from.
Technology can make it much easier to manage your cashflow. Cloud-based accounting is the biggest time-saver for many businesses, allowing them to work more effectively, free up time, and keep a better track of cashflow.
It gives you flexibility on where you can view your accounts and also takes away the hassle of backing up data. You can view your accounts on the move with a mobile device and stay in touch with your financial situation.
Accounting software can also if you don't have a lot of time for administration.
It is estimated that 90% of small businesses don't have a cashflow plan from the first day they start operating, even though they will forecast their profit margins years in advance. This is a very common reason that businesses fail. However, it is accepted wisdom that if your cashflow is in order, your profit will be in order. To make it past the first six months, businesses need a good cashflow to survive. It's best to work with smaller clients who are reliable and pay on time rather than run after bigger but riskier clients. Don't allow yourself to be blinded by profit.
Some small businesses have a dedicated person to keep an eye on money going in and out. Consider training a reliable employee to watch the debits and credits so that there is always enough cash in the bank.
Banking services like like overdrafts or credit can be very useful, especially when a business is just starting out. However, it is crucial to keep the bank informed of any unforeseen changes in your cashflow. Provided you are frugal about what you spend your money on, the bank will appreciate this communication and be more likely to lend you money when you need it.