Whether you’ve just set up your own business or have been on the scene for years, managing your cash flow is essential to success in any industry.
Keeping your eye on your company’s finances might seem like an extra headache, but these tips should help you remain on track.
Do your sums
It seems simple, but estimating cash inflows and outflows every month is something many businesses fail to do and consequently end up in trouble later down the line.
An accurate cash flow forecast takes into account your likely sales, likely costs and when you expect to receive payment, so that you can have a pretty good idea of what your financial situation looks like.
As well as considering the most likely scenario, it’s a good idea to also calculate the potential worst case scenario and then plan accordingly.
Regular monitoring also allows you to easily assess whether there’s a particularly big payment you’re making every month that could potentially be reduced.
Choose your clients wisely
When a potential new client offers you a significant sum of money it’s easy to say yes straight away – but it’s worth taking time to do some research before you sign on the dotted line.
Check they have their own finances in hand and whether they have a history of paying on time and don’t be afraid to get references from other businesses they have worked with, especially if you have any doubts about their ability to pay.
It’s all too easy to get into company debt if one of your major clients goes out of business, and although there are plenty of ways to tackle company debt, it can save you a big headache if you do your homework before agreeing to a new contract.
Persevere with payments
Although it’s important to set your payment terms with your supplier longer than your payment terms with your clients, be clear from the outset that you won’t accept clients making late payments.
If possible, offer incentives to encourage them to pay early. Dedicate a member of staff to keep on track of any missed deadlines and make sure you have a system in place for chasing any money that is owed.
From your side of things, it’s important to send out all invoices as soon as the work is finished in order to let the client know that they can pay up.
While it might feel a bit uncomfortable to be pushy, especially for those clients you are friendly with, just a few missed payments can leave you struggling to pay your own bills, so it’s crucial you know how to prevent this from happening.
Create a cash reserve
Putting aside money for a rainy day is much easier said than done, especially in the early days of a business, but it can often mean the difference between success and failure.
Whether it’s some equipment that you need to replace or a move to a bigger office, having an emergency fund can help protect you against the unexpected and could also give you the chance to invest in a new opportunity when it comes along.
The importance of managing your cash flow shouldn’t be overlooked and by keeping on top of your books and ensuring payments are made on time, your business will have a solid financial foundation on which it can prosper and grow.