Wondering how to manage your cashflow? You’ve come to the right place. By the end of this blog, you’ll have read about top tips to manage your cashflow and you will be equipped with the necessary information to help you do a really good job at it.
Cash and business
But firstly, what is cash? It’s what gets paid into your bank account. It’s factual, and more importantly, is the lifeblood of your business.
Secondly, why do we need cash? Your business needs it for a whole bunch of things.
Typically, cash is needed for:
- Paying your suppliers
- Buying equipment
- Paying off your loans
- Making sure you can pay your staff
- Keeping on top of your taxes
- Paying yourself – that’s got to be in there.
So running out of cash, access to cash or poor cash flow is squeaky bum time.
Your business will survive if your cash flow supports it. However, if you do a bad job at managing your cashflow, the cash will run out, or access to it will dry up. Unfortunately, it is the end of the business road if you reach that point.
It’s not for nothing that the phrase “Revenue is vanity, profit is sanity, and cash is reality”, rings true.
It’s good business practice to have a good cash flow management strategy.
Here are the five key elements that you should include to manage cashflow:
Manage your profitability
Evaluate your current pricing and profitability on your products and services, look at your sales mix, where efficiencies can be made and where your costs are being spent. For example, a decline in profitability can be caused by an increase in costs and no increase in revenue, an impact of discounting or a change in the mix of goods and services provided.
Manage cashflow with a cashflow forecast
Produce, manage and monitor your cash flow forecast. Prepare your forecast on at least a rolling twelve-month basis.
Your cash flow forecast should address three important areas:
- WHEN do you receive and pay cash?
- WHAT do you receive and pay cash from/to?
- HOW much do you receive and pay cash from/to?
Credit control
Above all make sure you have an effective credit control policy. Don’t adopt the ostrich look. Likewise, set out reasonable payment terms and do not be afraid to ask for partial or full payment up front. For example, payment terms can be up front, on delivery, or several days from invoice.
You may not feel comfortable doing it but keep on top of late payments and chase. Send reminder invoices promptly and follow up with a phone call if needed.
Have a good accounting system to manage cashflow
If you have regular inflow and outflow of cash, you can’t manage it in your head. Keep accurate up-to-date records of every invoice and transaction. For instance, an online (cloud) software like Xero will make this easier. So, consider investing in a package if you haven’t done so already.
When set up and managed properly, cloud accounting like Xero will give you and your business up-to-date and current financial information on profitability and cash flow. Undoubtedly, digital accounting is a powerful ally in keeping on top of credit control and managing your cashflow.
Make a contingency plan
Lastly, in my five tips on how to manage your cashflow: an overdraft or credit card facility can help to bolster any shortfall. But if your plan is to rely on these in the event of a cashflow problem, ensure your bank is willing to provide them, particularly at short notice.
And remember – you aren’t in this alone. Talking to your accountant or business advisor about the best way to manage cash flow can help you to build a better business.
Free webinar on cashflow management
- Do you struggle with cash flow?
- Are you worried about your finances?
- Are you a fast-growing business that is struggling with keeping the cash moving?
- Does your business have an unpredictable sales pattern?
- Do you know how much money will come in and out of your business and where that leaves you ?
If you’ve answered ‘Yes’ to any of these questions, then register for our FREE Webinar. Take charge of your Business Cashflow with the ABC Method.
Manage cashflow tips summary
I hope these five tips on how to manage cashflow prove useful. How to manage your cashflow is a need to know for any business, whatever its size, type or shape.
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