How to manage your business’ cash flow

How to manage your business’ cash flow

Without cash flow, you can do very little because it means there’s no money to pay what your business owes and to re-invest into the business!

So what is cash flow exactly?

Simply, cash flow is the money coming in and going out of your business. ‘

The better you manage this process of in and outflow of money, the better your business will do because it means you will have money to buy supplies and pay your staff and yourself.

Here are some tips to help you manage your small business’ cash flow…

1. Have a cash flow plan: This plan shows how much money you have available to pump into production, which jobs are in the pipeline and when they’re due to be delivered, plus when you expect your clients to pay.
2. Get prepayments in: In order to ease the burden of outlaying all your capital, ensure your terms of payment to your clients cover a deposit which at least pays for the materials you’ll need. Ideally, you should request a bit more so that you can cover part of the salaries if the order will take a long time to produce.
3. Chase your production line: The longer orders take, the longer you have to wait for your money! Chase production without compromising on quality. Don’t accept delays unless YOU agree that they were unavoidable.
4. Offer discounts for early-settlement: This is one of the most effective ways to get clients to pay quickly. 10% off your invoice amount if you pay within 48 hours or seven days for example, it’s a very effective strategy for getting money in. What you’re giving away in terms of discount, you will probably save in phone calls, numerous statement runs, someone’s full-time salary to chase payments etc.
5. Sell your outdated stock: Old stagnant stock is a huge cash flow drain. If you’ve tried to move the stock at normal price and can’t get rid of it, sell it for whatever you can get for it. This is an important lesson in learning to cut your losses.
6. Crack the whip with the accounts department: If you don’t submit invoices on time and chase payments, you can’t expect to get paid on time. Make sure your accounts department works like clockwork.
7. Do credit checks: Just one bad order can put you out of business if it’s big enough. Make sure you do credit checks on your non-cash paying clients. Better yet, ask for cash payments for the first two or three orders until they’ve built up their credit worthiness with you. Then only allow them to open an account. For really big orders, you can insure your clients’ payments, this way if they go under before they pay you, you can claim what they owed you. Speak to your bank about this.
8. Negotiate payment terms with your suppliers: If you can, open accounts with your suppliers so that you create a buffer for your business while waiting for your clients to pay.
9. Pay the most important invoices first! When cash flow is tight, choose who you pay first. Anyone that will charge you interest or penalties should get paid before those that are merely jumping down your throat for payment.

If you manage your cash flow well, you will be able to avoid embarrassments and a whole lot of stress for you and your staff.