Cash flow 101
By Emily Chantiri
Cash flow is exactly that: ready cash flowing in and out of your business. Successful business operators understand this concept - a regular cash flow will keep your business operating at an optimum level. Without it you'll be living on borrowed funds and patience.
As the owner of your own business, it's important to get your head around the amount of money you expect to receive from suppliers, as well as the outgoing expenses. This will also help when dealing with your accountant and other advisers.
Here are a few simple rules that are easy to follow and set up.
1. Keep an eye on your cash-flow balance
As a business owner it's easy to get caught up in your products and services and forget about the cash flow. Yet, without understanding how much you have each week, you will fall behind in paying bills, paying staff and chasing outstanding accounts. It is your duty to yourself, your staff and the business to know what your cash balance is at all times.
2. Have proper accounting procedures in place
Invest in good accounting software or employ a bookkeeper to track all the monies coming in and out of your business. If you're a new business owner and can't afford to hire someone to do this, then allocate time each week where you can reconcile your accounts. This can be as little as an hour and it's time well spent.
3. Don't allow late payers to slip by
It's a job we all hate, but keep on top of late payments. If you can't call the customer yourself, then hire someone to make calls for you each month. You need that regular income each month to run your business.
4. Negotiate with your suppliers
If you find yourself stuck and cannot pay your suppliers, then try to come up with a payment plan that works for both of you. And vice versa, if a customer of yours is having problems paying, then work out a mutually agreed way that they can pay you, even if it means small amounts. The aim is have regular income going into your bank accounts each month.
5. Keep cash flowing
If you have clients paying yearly or intermittently, then change this and have them pay regularly or more often, even if it is a smaller payment. Changing terms from yearly to smaller regular repayments can help maintain a regular monthly cash flow, allowing you to pay your staff and suppliers. It can be hard to budget for the year when you receive large one-off payments.
6. Reward clients who pay on time
Offer incentives and discounts to your clients to entice them to pay early. If you cannot offer discounts, then consider offering additional services - it really does work!
7. Establish rapport with your bank or lender
There will be times when you will have to call on your bank or provider for an overdraft to see you through some tough periods.
Maintaining regular cash flow is at the heart of every successful business - keep on top of these basic steps and your business is more likely to thrive for years to come.