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Tips to Manage your Business Cash Flow

Updated: Mar 2, 2022

Making sure more money comes in than goes out each month can be baffling for new businesses owners. The good news is there are solutions to make life easier, such as outsourcing some of the burden to an accounting service provider or using cloud-based accounting software.

Don’t totally check out from these responsibilities. Instead, grasp the basics of managing cash flow and stay engaged with how your money moves each month. This will help you stay keen on:

· Managing your accounts

· Drumming up more business

· Chasing payments

Simply put, businesses fail in the long term when they don’t make a profit. In the short term, they fail because they don’t have enough cash to pay their bills. Cash flow is the life supply of any business – more small businesses struggle around managing cash flow effectively. Not sure where to start? The first step towards an effective management of cashflow starts with keeping the financial books updated. Bookkeeping for small businesses can be outsourced to professionals while you focus on strategies to grow your business. The data and trends show that there is a rise in demand for outsourcing the accounting needs from small business owners for a better and effective management of their cash flow.

Why is Cash Flow Management Important?

The principles of good cash flow management are straightforward, but it’s also where many businesses struggle. Taking the right steps in the beginning will shape your business’s future. First, you need to make sure you have more money coming in than going out. Money also needs to come in on time, so you can pay suppliers and invest in stock and supplies.

Having access to cash also gives you better buying and negotiating power, which could save you money long-term. Anticipating any shortfalls in funds is important, too. This allows you to make contingency cash flow plans such as extending credit.

10 Ways to Manage Cash Flow Effectively

Here are 10 tips to keep cash flowing:

1. Credit control

Setting up a good credit control system doesn’t need to be complicated. It’s about getting paid as soon as possible and setting the processes to help. The basics include setting clear credit limits and payment terms for your customers, sending out invoices promptly and firmly chasing all debts as they are due. Staying on top of customer payments helps you identify which customers you could extend credit to.

2. Sales forecasting

Sales forecasting is all about predicting what’s ahead to prepare for cash flow peaks and valleys. You can start forecasting cash flow once you have a month’s sales behind you. Using your market knowledge, think about your pricing, your competitors’ pricing, the state of the economy and so on to figure out demand.

Remember: It’s better to be overly cautious than optimistic. This is the best way to avoid nasty surprises.

3. Cutting unnecessary costs and spend

When it comes to improving cash flow management, think lean and mean. Scrutinise every item you buy. Know exactly where your cash is going and always get the best value for your money. To improve cash flow only make purchases that are essential to grow or maintain your business.

Some costs will be tax-deductible for you as a self-employed person. The UK government website has a detailed explanation of qualifying purchases and how to document them. There are a different set of rules for limited companies, so be sure to do your due diligence.

4. Negotiating good terms with suppliers

It’s always worth investigating your payment terms with suppliers. After all, if you can settle your bill in 60 or 90 days rather than 30, you get to keep your cash a while longer and regulate cash flow. If you’re considering making a large order, always negotiate. Find ways to set up a regular payment plan, for example, instead of paying off outstanding amounts in one payment.

5. Managing stock

Monitoring stock closely and only ordering what you need is essential to avoid tying up cash unnecessarily. Work out what sells quickly and profitably to keep income steady. Don’t tie up funds in slow-moving items that are hard to sell. If you need a quick cash injection to improve cash flow funding, try selling off old or outdated stock at a cheaper price.

6. Don’t tie up cash

Once you start making sales regularly, it’s tempting to buy the latest equipment. Think wisely before splurging on excessive purchases and hold on to liquid cash. Ask your supplier for financing options for assets like computers.

7. Keep on good terms with lenders

Times may get tight. Though it can be difficult to get a loan in today’s climate, it pays to keep on the right side of the bank anyway. Always keep your books up-to-date so you can show your figures in case you ever need to borrow. If you’re struggling with repayments, talk to your lender. Don’t bury your head in the sand.

8. Consider alternative finance

Alternative finance providers create a platform for independent investors and small businesses to connect. Small business owners who can’t get funding through high-street bank loans, or want fast, flexible access to capital, can quickly connect with lenders and investors to create their own funding terms.

9. Spotting the warning signs

A slump in turnover, late customer payments, and settling supplier invoices late are telltale signs that your cash flow is suffering. Don’t ignore the warnings. It’s generally easier to work out ways to increase working capital before you incur more debt.

10. Being realistic about your business

Sometimes, to manage cash flow, you need to take a step back to see things clearly. If you are always struggling with cash flow and your cash flow statement is poor, ask yourself ‘why?’ Are your sales too low? Is your pricing off? Can you chase payments more aggressively? Be level-headed about your venture and its future. If you’re not making a profit, you may need to rethink things.

Enough to get you started? Feel free to drop in mail or schedule a fact finder call for a personalised business advice or professional help with managing your businesses’ cashflow.

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