Cash flow management for dummies
By Emily Chantiri
A good understanding of business cash flow is essential if you want your business to run smoothly. The benefits you'll reap from having regular cash flow will keep your business alive for years to come.
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.
Profit and loss statement
Get used to looking at this statement regularly as it provides a picture of your business's trading activities. Also, you'll be able to forecast future cash flow based on the figures over the past month or year. It records sales, expenses, profits or losses, and any tax payments for the period.
Establish terms and conditions
Make your business terms and payment expectations clear to your suppliers. Once you have sent an invoice to suppliers, follow up with an email shortly after to make sure they have received the invoice. State clearly the terms on the invoice (i.e. 7, 14 or 30 days).
Keep cash flowing
If you have clients paying yearly or intermittently, change this and have them pay regularly - even if it's a smaller payment but more often. Changing terms from yearly to small regular repayments can help you maintain regular monthly cash flow and pay your staff and suppliers. It can be hard to budget for the year ahead when you received large payments as a one-off.
Reward clients who pay on time
Offer incentives and discounts to your clients if they pay early. If you cannot offer discounts then consider offering additional services - it really does work!
Follow up as soon as possible
Sometimes invoices can get lost in emails or the mail, so it is important to follow up with your customers if they haven't made a payment. If all else fails, you may have to enlist the services of a debt collection agency to negotiate and collect payment.
Maintaining regular cash flow is at the heart of every successful business. What tricks do you use to manage yours?