No matter what stage your business is at, whether you’re writing a business plan for your startup or beginning to grow and hire additional staff, the importance of cash flow should never be overlooked.
While you need to spend time focusing on your customers, marketing and building your brand, you simply cannot do any of this without good cash flow.
Statistics show that half of all new businesses fail before five years, with cash flow problems being the most common reason. To ensure that your business can buck the trend, here are four ways you can plan ahead to avoid cash flow mistakes.
- Keep Your Books Up-to-Date
Although another time consuming administrative task, the importance of bookkeeping cannot be underestimated. Even if your business is performing well, having poorly organised financial documents can lead to difficulty, both when it comes to business profits and filling in your tax return. Misplacing bills or customer invoices can be all too easy, so make sure to allot time every week to this task, or else outsource to a bookkeeper.
- Forecast Business Cash Flow
Keeping a six to twelve month forecast of your business cash flow is one of the most useful tools for avoiding financial issues. This can help you to predict when your business may face lulls or increased profits, allowing you to plan for more difficult periods. To do this, simply create a spreadsheet and record all expenses, no matter how small. Remember to include seasonal costs, such as travelling for events, or increased heating bills during winter months.
- Assess Outgoing Costs
If you own a small business, you’ll know only too well that available cash can be limited. To help your business in both the short and long-term, assess which if your outgoing costs are vital. For example: do you need monthly software subscriptions? Could you reduce the cost of utilities? Is hiring an office essential, or could you work from home? If you’re spending too much, reducing now will increase your cash flow and could help to prevent future problems.
- Collect Invoices and Payments
If you are investing in stock and providing goods or services to your customers without receiving timely payment, your business could be in trouble. When selling, send an invoice containing clear terms, such as the form of payment and length of window – usually 30 days. Alternatively, you could consider using invoice financing, whereby as long as an invoice is in place, a funder will lend the specified amount until your client pays.