The way you manage cash flow – the movement of money in and out of your business – can make the difference between success and failure. Here are 10 cash flow management tips to help you get things right.
1/ Know your monthly break-even point
If your average monthly earnings are better than break even it’s a sign you’re on the right track, but don’t be complacent. Consistently failing to break even means you have a problem to investigate and fix.
2/ Do a cash flow forecast
Note the main sources of cash receipts and cash expenses over the last 12 months. Use this data to predict your revenue and costs for the next 3 to 6 months. It will help you see what adjustments are needed to maintain profitability and stay in the black.
3/ Build up a cash reserve
Aim to have enough cash to cover your operating expenses for 3 to 6 months. If you hit choppy waters you’ll be in a better position to ride out the storm.
4/ Have a credit control policy
Your policy should include detailed credit terms, procedures for assessing customers’ creditworthiness, and collection of outstanding debts. It should be formally documented and communicated to your staff and customers to establish good habits from the outset.
5/ Make it easier for customers to pay you
Clearly state your credit terms and payment methods on sales invoices. Send them out on time. Avoid common errors such as missing purchase order numbers, wrong contact details, arithmetical errors, etc.
6/ Reduce expenses and eliminate waste
Review your outgoings regularly. Cutting unnecessary expenses and preventing wastage will keep more cash in your bank account.
7/ Maximise income
Your business may be eligible for government grants and loans, for example. There may be other kinds of finance available. Doing research to maximise your income is time well spent and the governments Finance and support for your business is a good place to start.
8/ Lease, don’t buy
Spread the cost of new equipment by leasing instead of buying. Your monthly lease payments will be tax deductible and you won’t have to use up all of your cash or borrow the money to pay up front.
9/ Liqidate assets
Liquidate any assets that aren’t being used and can’t otherwise be rented, leased, or loaned to other businesses. Even if you have to sell them below their book value it will help your cash flow in the short term.
10/ Hire a professional
Cash flow management is essential but time consuming. A bookkeeping professional will help you examine the numbers and implement a sound cash flow management system.
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