Cash flow management can be an ongoing and difficult process to manage.
If you’ve arrived at the end of the year feeling defeated because you’ve seen large profits throughout the year, but you have barely any cash in hand, cash flow is likely to blame.
Here are our top 7 tips to help you manage your cash flow better:
- Look into the cycle and timing when receiving money – how long does it take until you to get paid after the sale? If you can, keep it under 2-4 weeks, send the invoice out as soon as possible and follow up regularly. You may also wish to look at discounting invoices for early payments.
- How long does it take for your product or service to reach its customers? This is always easily overlooked. For example, if you paid for stock and it’s stuck in transit for a month, you’re losing one month of time to turn your stock into cash sales.
- Don’t always pay bills early! We aren’t telling you to pay late. Just manage your bills and try to stretch these payments as long as you can. This keeps a cash reserve to be used in case you run into a tight situation.
- Take up a bank loan or an overdraft for the business. Many business owners are too afraid to take up a loan and thus they hurt their businesses without even realising it. The business needs enough working capital for it to run.
- Budget, budget, budget – plan your business expenditures and keep track of how much money you have. Work out how much money your business needs to run (i.e. working capital) each month and make sure you don’t spend too much. Keep track of an established threshold so you know when you are dipping below your minimal working capital.
- Increase your prices to account for inflation, supplier cost changes, foreign exchange rate fluctuations and other variables. Do not be afraid to increase your prices. As a business owner, you need to do what’s right for your business.
- One final tip is to leave some money to pay for your taxes. It’s imperative that you understand – taxes must be paid. Do not spend all the profits and expect to pay no tax.
We understand that business owners are often pressed for time and therefore may unintentionally neglect to stay on top of their cash flow. If you’re struggling to manage your cash flow chat with us about setting up a budget and cash flow forecasting for your business – we are always happy to help.