As any business owner will testify, cash flow is one element that cannot be underestimated.
Even if your business feels as successful as it can be, poor cash flow can undo years of work and cause your downfall or, if you don’t want to give up on this business, can make you decide to cease trading and restructure your business so that it can come back stronger after an extended period of time (in which case, you might need to learn things like how to file company accounts for dormant company to make sure that you don’t incur any fines that could leave you in even more financial difficulty).
Of course, like anything in business, there are ways to mitigate this risk. We’ll now look at six tips to help you manage it appropriately.
Analyse and Monitor Your Cash Flow
The first step in managing your cash flow is to analyse and monitor it. This means keeping track of all your income and expenses and understanding where your money is going.
It’s important to keep track of this information over time, as it will give you a better sense of your financial health. Not only that, but it will also help with your tax situation come the end of the year!
Create a Cash Flow Forecast
Once you have a clear picture of your current cash flow, the next step is to create a cash flow forecast. This is a detailed projection of your expected income and expenses over a certain period.
A forecast will give you a better idea of when payments are due and how much money you will have available. This can help you plan for any potential cash flow issues before they occur.
Keep Track of Invoices
Invoicing can be a tricky part of managing cash flow, but it’s essential to get it right. Make sure you keep track of all invoices, who they’re sent to, and when they’re due.
Setting up an automated system, like an online invoicing platform, can help you to manage invoices more efficiently.
Take Out a Business Line of Credit
If you’re worried about cash flow, consider taking out a business line of credit. This is a loan that you can take out when you need it, and it is a great way to manage short-term cash flow issues.
Take Advantage of Payment Options
Giving customers more payment options can be a great way to manage cash flow. Consider offering payment plans or discounts for paying early. This can help to ensure that you get paid on time.
This can work one of two ways. You can go for the “customer-friendly” option of offering a discount for paying in good time. Or, on the flip side, you add surcharges onto invoices that are not settled within a set period.
Manage Your Expenses
Finally, make sure you keep a close eye on your expenses. Review them regularly and look for ways to reduce costs where possible. This can help you to free up more money that can be used to manage cash flow.
It’s not unheard of for small businesses to be fixated on large costs and forget about the less obvious ones, such as public liability insurance and even employer pension contributions. As such, make sure everything is factored into your calculations.