Cash flow management

Good cash flow management is vital, nay critical

to the success of your business. In fact, it's a

stated truth that if your business does not have access

to cash resources, does not have access to

the ability to manage cash flow correctly, then survival

is going to be seriously questioned. You can survive

without making profits for a period of time, but you can't survive without

cash access to cash. So it's vital that as a business

owner, as somebody who runs a business, cash flow, though it

may feel like the headache and pain of your life, is an absolute

necessity. And in this week's podcast, I've got seven strategies

to make this process easier and to ensure that your business stays on

track for financial success. Let's dive into it.

Number one Create a cash reserve. It's always a good

idea to have a safety net in place. A cash reserve is going to help

you to cover unforeseen costs, keep your business

afloat. Should there be any change in activity,

should the outlook be bleak, should disaster

strike, you're going to be covered. As a rule of thumb, and this is something

I borrow from the not for profit, from the arts and creative sector,

three to six months of operating costs of average cash

flow is a good buffer to have. Think about if your

business stood still and no more customers bought from you, how

much money would you need to keep ticking over for the next three to six

months? And that's your aspirational target. Number

two, cost consciousness or frugality if you prefer.

Now, every business owner knows it can be difficult to find a balance between

growth and cautious spending. However, it's important

to develop a minimum viable budget. Yeah, I use that word

budget and continue to stick to it even when cash is

flowing into your your business. Having that sense of financial discipline

is really an important thing to adopt. Good times don't always

last forever and if you're unable to save money when the going is good,

it's going to be pretty tough to do that when times get tougher.

Number three, if you're a product based business, keep an eye

on your inventory. Managing your inventory poorly will

create a lot of expensive problems which will impact

severely on your cash flow. It costs money to acquire

the inventory. That's money tied up. It costs you money to hold inventory

and it costs you money to manage inventory. So we need to make sure that

balance of how much inventory we need to fulfill demand.

Not overstocking, not having obsolete inventory items that we're

carrying. That's dead money effectively until it's sold. We need to make sure

that balance is correct. Now, when you don't organize your

inventory correctly, there may be items you misplace that

aren't stored correctly, that become obsolete or damaged, and we might end up

ordering replacements basements that we don't actually need. The next thing to

consider is about leasing your equipment. Now some business owners

prefer to purchase assets outright and to own them.

And purchasing equipment in its own right might prove to be more effective

and cheaper in the long term and it may have an impact on profitability,

but it also might damage your cash reserves in the short term.

Investing Buying expensive upgrades can present a real

problem when funds are tight. Now leasing and again

on one respect might be more expensive. However, it's going to

free up cash flow, it's going to be less cash commitment, less cash

outflow going out of your bank, and it helps you to monitor and

regulate your cash flow more easily. And a lot of leasing higher

purchase arrangements. Here you may have the option to purchase the equipment

outright at the end of the term of the agreement

or to even upgrade number five equipment

loans. Now, instead of purchasing outright, you might

want to consider something called an equipment loan. And this type of loan functions in

much the same way as a traditional bank loan, but the risk profile

is lower. The market is there for you to have a shop around and have

a look at those options about how you finance and fund that equipment. And

again, an equipment loan may be something that's going to be more suitable for

your business type. Now this might seem like contradictory terms

but but the next thing to consider is you borrow when the going is good.

Now prevention is always going to be better than a cure. So borrowing money when

your finances are looking good may actually prove to be a good thing

for you. Better to open a line of credit now until you be able to

use it later than risk rejection from the bank when

you're already in peril. In addition to this, seeking a loan when

your business is in good financial health gets you better rates and it

gives you the freedom to shop around. Now the last one,

and I'll give you a bonus at the end, is to hire a good accountant.

Now cash flow problems often sneak up on business owners they shouldn't

do. And it definitely pays to have a professional on side who can

spot problems from a mile off and give you solutions before your business

starts to suffer. In my own practice, I hate numbers and through

numbers know how we support a number of clients by helping them do

forecasting, preparing budgets. Having a look through the windscreen of your business

is better than getting caught out by unexpected

surprises. Now, good cash flow management, folks, in summary, is

about preparing for the worst and maintaining those sensible,

yep, sensible financial habits even when the going is

good. Creating that cash buffer, that cash reserve, remaining

cost conscious and keeping on top of your inventory. You can

protect yourself against the cash flow problems that cause havoc

on many small businesses. It's certainly worth considering borrowing during

the good times and considering equipment, loans or leases rather

than shelling out cash immediately. Maintain that healthy cash

flow. Make sure you've got the accountant advising you and

helping you with your forecasting, and making sure your bank balance stays as

healthy as it can for years to come.