We often get asked by young and growing businesses how they can manage their cashflow better. Businesses may have healthy margins on their products but if they don’t have the cash needed to generate sales they’ll be dead in the water, all at sea, sunk, and other nautical idioms. Below are our top tips for a young business to maintain healthy cashflow and, hopefully, keep growing.
1. Invoice promptly
It seems like a no-brainer – you can’t maintain your cashflow if you don’t invoice your customers – but many businesses can fall behind on invoicing; other, more immediate concerns, take priority sometimes. To avoid this most grievous and understandable of errors, schedule some time every week to make and send your invoices. If you keep an organised filing system (admittedly, a tall order) then you should have everything to hand – using cloud accounting will streamline this process. Also, check for mistakes as the processing in large organisations can be arduous and simple errors can lead to weeks of delay.
2. Stagger your payments
Cashflow management for a growing business is a delicate operation, like pick-up sticks or designing a high-performance rocket propulsion system. As with rockets, timing is crucial: don’t pay all of your bills at once. Instead, spread your payments out based on the level of importance and your priorities. Utility bills, salaries, rent and things of that ilk should be at the top of your list. Whereas wholesalers, suppliers and vendors for small businesses can be flexible on payment schedules as long as there are regular payments and you keep them abreast of the situation.
3. Make use of technology
It is the 21st century and the digital era is in full swing. Managing cashflow with Excel (or, Heaven forbid, on paper) is time consuming, inefficient and more easily susceptible to errors. Consider using a cloud accounting service like Sage or Xero to make keeping track of your finances and invoicing easy. With these services you can view your accounts on tablets and mobiles as well, and so can be up to date with your financial situation 24/7.
4. Make your customer’s life easy
Depending on the nature of your business, online payments are a significantly better option for making payments than most others. The easier and faster you make paying for your customers, the faster you get your money. It will also help towards creating a positive consumer experience for your customers, making them more likely to do repeat business.
5. Don’t pay on future sales
Simply put, do not make payments on sales you are hoping to make, only when they’re banked. By doing this you will know what your working capital is and what you can pay.
Finally, a few closing notes that should be considered: you are entitled to chase late payments, just do it in a respectful and courteous fashion; strengthen cash reserves during good times; and research alternative types of finance that may help you unlock more working capital.
If you’d like to know more why not try reading the blog from our ‘Meet the expert‘ series on this topic?