If your business is profitable, that doesn’t mean that you’re immune from cash flow problems. You need to keep a balance on the money coming in with the money going out; otherwise, you could be at risk of losing some of your suppliers, customers, or even your employees.
The good news is that cash flow issues can be managed by taking simple precautionary steps to prevent any disaster from occurring. Here are 7 steps that successful businesses employ to avoid any disruption to their cash flow.
- Maintain a Cash Flow Forecast
The best way to keep an eye on your future cash flow is to know how it tracked in the past. Begin today by keeping track of your incoming payments and outgoing expenses. If you can track your cash flow over 6 months to a year, you can get a better understanding of the finances.You can then extrapolate this data out into the next 6-12 months to accurately get an idea of major expenditures and seasonal influxes of capital. The key here is to be realistic. Allow for growth, and allow for the unexpected to happen as well. Your forecast should also have a buffer to cover any unforseen expenditure.
- Create Consistent Paying Customers
Be aware of the customers who are not paying you on time, and chase up the payments that have gone overdue. If you can establish a regular system of chasing up overdue accounts, your customers’ paying habits will improve over time.You’ll also gain some insight into the customers that are habitually late and who could be facing financial hardship.
- Access Temporary Credit
Your business could have access to more credit than you might think. If you win a big client and have proof of a long-term agreement, you can use that to seek a line of credit from the bank. They may be willing to extend your credit lines if you can show growth and development in your business. An overdraft or short-term loan from the bank can cover the time you’re waiting for the payment from your customers.In Australia, many businesses are taking advantage of invoice financing, a facility that provides access to capital if you can demonstrate that a customer has an outstanding invoice with you. This can smooth out irregularities in your cash flow. A variety of banks and specialist lenders offer this type of product.
- Negotiate Your Outgoings
A big part of managing the finance and cash flow of your business is to keep an eye on operational expenditure. Some of these expenditures can be controlled by negotiating with your suppliers. You might be able to negotiate discounts for early settlement of your account.Many companies are willing to offer a 2-5% discount on the total price on early settlement. Efficient cash flow gives you the ability to now seek out these discounts, which can be a real-win-win for both your business and your supplier relations.
- Prevent Profit Problems
Every now and then, your business can lose profitability. You could be offering discounted rates to keep customers, or suffer an unexpected increase in costs. You’re really only hurting your future self when your business cuts profits. Understand the profitability of your business. Isolate the sources of the cash drain. There are several ways to increase profitability. You could introduce incremental price increases, focus more on sales, or get better control of your outgoings. Whatever method you choose, be aware and be ahead!
- Hire Slower Than Your Growth
Too many businesses fall prey to the act of hiring too fast, and then getting caught with the cash flow issues of having to pay too many employees. It’s a good rule of thumb to hire slow, and it matters to more than just your cash flow. You should spend more time hiring the right people, and maximising the return from each employee.
- Eliminate Cash Suckers
Every business has them; those little expenses that drain away your cash on a regular basis. Start to identify cash suckers like monthly subscriptions nobody needs, costly regular repairs on old equipment, or unnecessary expensive software. Look critically at every area you’re spending money.These are the simple solutions that many businesses use to keep control of their cash flow, no matter what the market is like.
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