Many people ask us what is the most important factor in business and it simply is cash flow. The importance cannot be understated as a bad cash flow has and will kill companies galore, but handling the money in and out of your business is a key skill that cannot be taken lightly.
Therefore here are some simple tips to help you get to grips with a subject that can never be neglected.
Forecast your cash flow
A good method to control cash flow is by maintaining a cash flow forecast, to provide an accurate outlook for the next six to 12 months.
By setting targets for credit controllers is a sound way to ensure it is given the attention necessary and provides an incentive.
Agree clear payment terms
Establishing clear payment terms from the outset is vital as if you don’t start off knowing what your payment terms are, it is difficult to know when you are going to get paid. Basically if you don’t know when a payment is overdue, how are you going to manage the cash flow?
We believe it is good business to pay within 30 days. Your employees need paying in 30 days and your suppliers also need paying in that time.
SMEs should invoice clients as soon as the work is completed. After all if you wait three weeks after the work has been complete, then it should be clear that it will take a further three weeks before that cash arrives in your bank.
Issuing your invoice by email will mean it will get there immediately and you will have a record of it being sent. Also try to avoid being paid by cheque as this lows the process further. Online payments are a much better option.”
Focus on profit rather than cash flow
If your cash flow is in order so should your profit be. New businesses should work with reliable, quick-paying clients initially, even if it means smaller clients and slimmer profits margins.
Keep the bank in the picture
Banks offer businesses useful services like overdrafts or credit, particularly when they are new and keeping the bank informed over any unforeseen outgoings and changes in forecasts is vital.
Let the bank know so there are no shocks and if you speak to the bank regularly you may find they appreciate that and it helps build up what is a vital relationship.
So hope this little bit of advice has helped. The whole subject surrounding cash flow is a big one, but always bear in mind that cash flow is king and it may help you get through the sticky times and ensure your business thrives.