The term cash is king is often touted in the business world, but making sure you have a steady flow of cash coming into the accounts is vital to a company's longevity and prospects.
With this in mind, Instant Offices has offered some handy advice on how to manage cash flow in your business, from hiring dedicated personnel to making sure you don't undersell yourself.
Decide on your funding options
There are many different funding options for businesses, each with their own pros and cons. Choose the one that works best for your company:
Create a forecast
When determining your cash flow needs, creating an accurate forecast is a critical first step. Think about your forecast smartly though. You need to include factors such as the sales cycle, terms and discounts provided to customers, industry delinquency rates and other factors that may affect the timing of incoming cash such as VAT. Also estimate expected expenses regarding salaries and tax, equipment, office rent and supplies. It is important to look at sensitivities to this forecast such as the timing of payments from customers to estimate the impact of changes on your cash position to see if there are any low points or funding needs that may cause issues.
Monitor and stay flexible
You should be reviewing your forecast on a monthly basis at least and adjusting it to align with your actual cash flow. If cash flow is higher or lower than expected, you need to identify the causes of this. Once the reasons for the forecast variances are determined, the business can make the necessary changes, either to the forecast, the business plan, or both.
Have a back-up plan
No matter how much effort you put into perfecting your forecast, unexpected obstacles can throw your plans out the window. For this reason, you need to have a contingency plan for when money is tight to ensure your business is kept running. This could take the form of credit, personal assets or friends and family. Regardless of which option you choose, it needs to be secured long before things have the chance to go awry. The key to managing cash shortfalls is to become aware of the problem as early as possible. You must have a line of credit in place well before you need it, as most banks will hesitate to lend money to a business in distress. Waiting means that your business could go under in the time it takes you find the money.
Other possible backups
Bill your clients on time
Making sure you have a regular flow of cash coming into your business is key. It may be tempting to give new or loyal clients credit or extended payment options, but every time this happens it puts a strain on the business. Companies need to meet their financial obligations, meaning that you need a consistent in-flow of money. One of the biggest problems SMEs face is customers and clients not paying on time. Often businesses have a process of payment, so be sure to bill your clients immediately, track invoices and send reminders via email before the due-date. Ensure you’re getting a regular in-flow of money with some of these options:
If you’re running low on available cash flow, choose the bills you pay carefully. Payroll is most important, and crucial suppliers are next. If you’re tight for cash, ask the rest if you can skip a payment or make a partial payment. This will help to tie you over until you have more funds available. This may impact on your relationships with suppliers, so if possible, make sure suppliers are paid on time. The good will from this may give you more scope to defer payment when you really need to.
It can be tempting to lower your prices in order to offer your clients the best deal and stay competitive. Be careful not to underprice your products or services though. Make sure you are bringing in a healthy profit margin and that you can account for your time, including time spent planning and travelling. This is time that you could have spent elsewhere making money. It’s OK to charge what you’re worth.
Appoint a cash flow manager
If you’re running a business, you have 101 other things to do on your list. If possible, appoint someone to manage and monitor your cash flow. Having a person responsible for managing cash flow ensures that someone is keeping a close eye at all times so that your business can stay flexible and make changes when you need to.
Plan for the future
Always have one eye on the future when thinking about your expenses. Make sure you have enough cash to manage your business, but also to cover any upcoming expenses or expansions. In business you want to be able to grow and evolve, and having the money to do so means that when the time is right, you’ll be able to do just that.