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For those in business most will have some appreciation of the importance of Cashflow. Whatever industry you are in you will hopefully benefit from some, if not all, the tips we have outlined below to help your business to improve its cashflow
1. Have a cashflow & review it monthly
It may sound silly, but this is actually the logical place to start!
We have been continually surprised by businesses we come across where they do not have a sufficient grasp on cashflow in their business; A business without sufficient cashflow may be on a path to failure.
The first step therefore is to have or creates a Cashflow statement. This does not need to be a complication document; it can simply be an excel spreadsheet which tracks (monthly we would suggest) the money coming into the business and the money going out.
This information may differ to your accounting information in a business which is not always represented on a ‘cash’ basis.
The statement would have your business bank account balance at the top, add the cash coming in, less the cash going out which will then give you your anticipated bank balance at the end of each month into the future.
This then gives you the ability to understand when you need to make some allowance for a shortfall in cash and/or should highlight areas for you to improve your cashflow (see below) to avoid any negative cashflow situations.
The second important element here is that once your Cashflow statement has been prepared, and hopefully utilised as a tool in your business, it then needs to be reviewed on a regular basis.
Things won’t pan out exactly as you predicted or planned so your bank balance may not be exactly as anticipated, so at the end of each month (if this is the increment in which you have created your cashflow) you should then adjust the bank balance to reflect the actual cash balance in the account.
This then gives you an up to date and accurate view of your upcoming cashflow. If this is not done, then every month your cashflow gets more and more out of line and loses its usefulness as a financial tool.
2. If you are not good with money then hire in help
Some of you may be reading this and saying yes that’s all very well but I don’t have the time for that or ‘numbers are not my thing’ or ‘I need to bring the sales in and the rest will sort itself out’ then it may be advisable to consider hiring in someone with the skills to help you with this and other element of the business.
This does not need to be a full-time role, in this age of more flexible and part time working and services for hire on the internet, any skill can be hired for as much or as little time as you need.
You may be surprised at the flexible options available to you. For only a few hours a week we believe you will see huge payback in your business, when armed with this type of useful financial information you will be able to make for better informed and more strategic decisions for your business which will ultimately make you more successful.
This is something we have both utilised and carried out for others in our business and we believe firmly in the benefit this brings.
3. Send invoices out immediately
It may seem on the face of it that a weekly ‘payment run’ or time set aside to do invoicing all at once is an efficient use of time but this actually impacts cashflow in your business by unnecessarily delaying receipt of money owed to you.
You should invoice all client immediately on carrying out of any service or purchase they have made.
4. Offer early payment discounts
A further option, which may be suitable to your business, is to offer your customers an early payment discount.
It does not necessarily have to be a large % discount but it is inevitable that if you do this you will see customers make payment a lot quicker than previous.
This may sound like you are getting less money into the business but what is sometimes more difficult to quantify is the impact on your business of a delays in the receipt of cash into your business or then the time for your staff to chasing up invoices payable.
The cost to you of paying someone to carry out this role could be replaced with offering an early payment discount.
If you are still unsure, why not give it a try and monitor the impact this action has on your business, you will soon know if it worth implanting longer term.
5. Raise your prices
If your cash flow is poor, it may be time to consider increasing the prices for your products or services. Ask yourself:
- What are my competitors charging?
- Have the prices for equipment or inventory increased?
- Do my prices compensate for the time put into my creating my products?
- Are my prices too low? Do my products come off as cheap or valuable?
You need to find a balance between keeping your process competitive and providing adequate compensation to your business for the hard work you and your employees do.
The key to your business is going to be making sales and ultimately making a profit but if your prices are too low it may give the impression of your product or service actually being inferior to your competitors and may be negatively impacting your business income.
This is another approach that can be tested to check if it works and again the increment for price increase may only nee to be very small but across an entire year within your business may have quite a large impact on your cashflow.
6. Manage payables strategically
This approach relates to how and when you pay your suppliers.
If your suppliers are offering an early payment discount, then it may be worth taking advantage of that.
If they do not, then you only need to pay the invoice when necessary. The terms of payment are set by a business as this is when they expect to be paid, no sooner.
7. Improve Your Inventory
It is worth carrying out a regular inventory check, if you don’t already, if you are a product-based business.
Are some products moving a lot slower than others? The fact that these products sit on the shelf or in the warehouse for longer means they tie up a lot of cash on your business. That means the money/cash in your business is not being turned over quickly, this impacts your cashflow.
It may be worth selling some of those ‘hard to move’ items at a discount to move them on and free up some cash. Make sure you are not buying more of what doesn’t sell.
It can be hard to walk away from products that have significance to your business. The first product we designed, last years best seller, my Mum loves that product… etc. etc.
You may be hoping (even subconsciously) that one day sales in that product will increase again, but that may not happen. It is important to try to be objective, rather than emotional when it comes to inventory, stock levels and buying decisions for business as this will only mean improved cashflow.
We hope you have found these suggestions helpful. We believe, and have seen through our experiences that following some, if not all, of these suggestions will help increase the cashflow in your business.
If you need some help with improving the cashflow of your business, then please let us know. Or if you have tried and been unsuccessful, we certainly have some other strategies that may help you out if you are at a low point in your business.
Get in touch for a chat or a coffee, it’s on us!