After our introduction to Cash Flow, we wanted to share a little more with you on this important subject. Starting with 7 ways you can keep the cash flowing in your business.
Many businesses struggle with maintaining strong cashflow, and not just in those crucial first months but also years after starting. Cash can become tight in a business for many reasons; such as following a global pandemic (or any type of crisis), when trying to grow, or just through poor processes and management. A stifled cashflow is one of the biggest reason businesses fail.
Benefits of Cashflow Management
Cashflow planning is best practice in any business and critical to survival and growth. Setting cashflow targets and regularly monitoring your actual cashflow against your forecast will…..
· Give you an understanding of cash and liquidity for better business decision making
· Help you understand the key cashflow drivers and the Cash Conversion Cycle in your business
· Enable you to predict and plan for large cash outflows and respond to changes in your business
· Provide peace of mind that your business’s cashflow needs are known and properly funded
· Improve business processes that maximise cashflow, profit and business value
· Drive your business to achieve your goals in a controlled and managed way
7 Ways to keep your cashflow flowing….
So now you know how important cashflow is, and the benefits of managing it properly, how can you improve it?
1. Understand your business’s Cashflow
Profitable businesses can experience extreme cashflow problems, just as unprofitable businesses can survive if they’re well-funded. Understanding the difference between profit and cash and your business’s Cash Conversion Cycle is essential for your business to be viable in the long-term.
To be able to forecast and manage cashflow you first have to understand what the key drivers of your cashflow are.
2. Review and reforecast your business’s Cashflow & KPIs
Once you have an understanding of Cashflow, you need to forecast and evaluate it. Without a forecast and regularly reviewing how you are performing against that forecast you may struggle to manage your cashflow effectively.
3. Get paid as quickly as possible/Reduce your Days Receivables/Cash Conversion Cycle
Getting paid quickly is the easiest way to improve your business cashflow. And there are some easy ways to reduce your days receivables. Such as by sending your invoices immediately or sending interim bills - the sooner you send an invoice the sooner you will get paid. Having clear payment terms, and making it as easy as possible for customers to pay by giving them multiple payment method options. And don’t forget to set up your Xero invoice reminders, so Xero automatically follows up any invoices that become overdue – just be sure to reconcile your bank regularly so that your customers don’t receive reminders after they have made payment.
4. Maximise your Payables
Pay any bills on time to avoid late payment penalties. And don’t be afraid to negotiate with your suppliers – request better payment terms (30 instead of 7 day), or discounts for prompt payment.
5. Maximise your income
Look at the pricing of your products and services, think about expanding your market by adding complimentary products and services or widening your customer base – consider going online, or extending the geographic area you cover. Invigorate your sales collateral: update your shop or website, to get your customers attention and attract some new ones.
6. Reduce your expenses
Whilst cashflow is different to income, expenses do have a big effect on the flow of cash in your business. So it is always a good idea to cut any unnecessary expenses and look at how you might be able to save money. Consider things like leasing rather than buying assets, online and virtual meetings to reduce travel costs, modernise your marketing efforts – social media marketing is often cheaper and can be more effective than traditional print marketing.
7. Think ahead/Look to the future
Think long term, have an annual business plan, keep an eye on what’s happening in the world and the general economic conditions that could affect your customers or suppliers (and therefore your business) tomorrow, next week, next month, next year.
Whether your business is struggling for cash or not, every business owner needs an understanding of cashflow and liquidity for better decision making. All businesses should have a Cashflow Forecast in place at the beginning of the new financial year - having said that, we can prepare one at any time.
If cashflow is something you want to improve your own understanding of, or recognise as a challenge in your business, get in touch. Here at Pulse helping our clients look ahead with confidence is core to our purpose as your accountants. Which is why we offer Cashflow Management Coaching, where we work with you beyond preparing a Cashflow Forecast, by understanding and treating the underlying causes of poor cashflow - starting with your Cash Conversion Cycle.
Inadequate cashflow is a symptom of management problems in a business, NOT the cause. We will help you fix the underlying issues.
Cashflow Management Coaching includes preparation of a Cashflow Forecast along with a three hour Cashflow Management Coaching session to:
- Discuss and finalise the Cashflow Forecast
- Identify your current Cash Conversion Cycle
- Identify the likely causes of cashflow problems within your business
- Set 12 month and 90 day cashflow improvement goals and actions
This initial session is followed by four quarterly accountability coaching sessions, ensuring that you put in place essential cashflow management strategies and achieve your cashflow improvement goals.
If you need a helping hand with a cash flow forecast, and improving your business’s cash flow, come and have a chat with me.
