Many people believe that profit equals success in business, but in fact, it’s good cash flow management that will keep your business running effectively in the long term. Maintaining enough cash flow will allow you to have enough working capital to operate through the quiet times and will influence your future spending decisions and the direction of the business. Despite this fact many business owners do not monitor the cash flow of their business closely enough to weather the tough times and plan effectively.

The first thing any business owner should do is create a cash flow forecast. This will identify when cash comes into the business and when it goes out of the business. It will help to identify where cash shortages may occur and when extra cash will be available. Understanding the cash flow will give you the best information to make strong business decisions. Also keeping your books up to date from an accounting perspective will also assist in cash flow predictions. Things such as tax to be paid, understanding seasonal trends and generally having a snap shot of where the business is at will assist in understanding the cash flow cycle.

Let’s look at some ways to improve your businesses cash flow position:

  • Knowing what levers to pull to bring cash in and slow cash going out

There are a number of ways to bring cash into a business. You may consider revising your pricing, increasing sales through advertising or other means or effectively managing your debtors. 

Alternatively, you can reduce cash going out of your business by revising expenses, inventory or staffing levels to determine whether cash can be saved. 

Other options to consider may be refinancing or consolidating loans or selling underused assets. 

  • Getting your invoicing or payment collection right

In order to manage cash flow effectively every business owner must have clear control over invoices getting paid and payment collection. Late payments can put undue stress on any business. 

Ensure you know who you’re dealing with when it comes to debtors and issue all invoices promptly and with clear terms. Offer credit card payment options, bank account details and other convenient methods for your customers to pay. The PayNow app allows an easy and affordable way to collect timely payments from customers. 

The faster you receive payments the better your business cash flow will be. Some businesses offer a discount for early payment to encourage quick payments. Late fees could apply if the payment is made after the due date and can deter people from making late payments. 

  • Managing stock levels

Only have on hand enough stock to meet the business demands. Excess stock can use up valuable cash and possibly cause increased costs in terms of storage and insurance. Do regular inventory reviews and understand the quantity of stock you need to have on hand at different times in your business’s sales cycle. 

  • Building a cash reserve

A cash reserve is liquid funds that can be used at any time to cushion cash flow when unexpected events occur. A cash reserve will also give you funds to continually grow your business. It may take time to build a reserve but hold onto it when you do. This reserve also can be used to take advantage of unexpected opportunities that may arise. 

As with all business skills, if you don’t have the right skills to manage or understand your businesses cash flow then hire an expert or get help to upskill so that your business thrives instead of just survives. The cash flow cycle can make or break a business and takes knowledge of your business to manage it effectively. 

Jo Coveney