In business, a fact of it’s rare for cash flow to be consistent every week, and there will be ups and downs. Business owners need to know how to manage their fluctuating cash flow.
Most people start a business because they have knowledge and interest in their market sector, but providing great services or the best products is not enough to ensure that the business is successful. It is vital that cash flow is managed well too.
Make sure you get paid
Many business supply goods or services on credit terms. There can be times when sales are good, but cash flow is down due to the amount of money owed and unpaid.
Normally, payments are due within 30 days, but often companies will pay late. Reminder letters need to be sent out promptly, and offering discounts for early payments can increase cash flow.
Encouraging creditors to pay by direct debit means that payments are always made on time.
Focus on cash flow, not profit
If your business plan forecasts that your company will make a profit at the end of the first year, but there is not enough cash coming in now, the business may not make it to the end of the year.
On paper, a company can appear to be in profit, but much of the profit could be in money owed. Without sufficient cash flow, there will not be enough to pay the day-to-day expenses and salaries.
If you focus on creating a healthy cash flow, then it is likely that the business will be trading at a profit.
Work with your bank
If your cash flow is likely to be low temporarily, talk to your bank. If cash flow will pick up at a later date, your bank may extend overdraft facilities or provide a loan. If you have a good relationship with your bank, they are likely to help you, because it’s in their interest for your company to succeed. The more transactions that go through the bank, the more fees that they can charge, and overdrafts make them money too.
Outsource
Few business owners are financial experts, so hiring an expert accountancy outsourcing service is worth paying for. A skilled accountant can guide business owners in how to manage their cash flow.
Finance and accounting services can help you set up the procedures and systems that enable you to manage the ups and downs of your cash flow.