Managing your Cashflow
Cash is the life-blood of any business. It takes self-discipline and good management to maintain a positive cashflow position within your business. One of the main reasons a business fails is ineffective cashflow management. Cash shortages can prevent you from meeting your financial obligations, and can make it difficult for you to plan for the future.
Managing your cashflow to enable your business to maintain day to day trading, needs to be the key business focus and that means reviewing all the areas where cash can stop flowing. To help you forecast your cashflow requirements, use our Cashflow Forecast Wizard located in our Tools Centre.
Stock Control
Tight controls need to be kept on inventory. Keeping too much product on hand can tie up large amounts of cash. Have a look at your inventory needs throughout the year for seasonal requirements and then make sure your inventory turns over at a regular pace. The Stock Turnover ratio is a valuable inventory management tool, enabling you to spot under or overstocking, obsolescence and the need for inventory improvement. You can calculate your Stock Turnover Ratio using our Stock Turnover Ratio Wizard in our Tools Centre.
Debtor Management
Credit has become a way of life, efficient credit control and debt recovery are of the utmost importance. The fundamental rules of good debtor management include minimising the time between a sale and payment, keeping detailed debtor records and reports and acting immediately on overdue accounts. For more information refer to our Debtor Management Guide in our Related Information section.
Maximise Payment terms from Creditors
Do not pay every bill as soon as it arrives. If suppliers require their money more quickly, ask about discounts for early payment. Extending a credit period will help your short-term cashflow, which could be done by agreeing with your supplier to defer payment of bills for an extra 14 days, meaning there will be more cash in the bank for this period.
Reduce Expenses
It is critical to have a cost control strategy. Your profit and loss account provides you with a breakdown of your expenses and can be used as a tool to locate those which can be reduced or cut.
One of the most common problems with businesses is the tendency for the owner to spend freely on capital or overhead items. Always fully assess if capital expenditure (e.g. purchase of premises, office furniture and computers) is necessary or if there is a more, cash friendly option, i.e. leasing.
Keep tight controls on overhead expenditure, such as the use of phones, purchase of stationery, petrol costs, to ensure that cash is put to optimal use.
Additionally, consider your staffing costs. Would it make more sense to employ some staff members on a contract or temporary basis, rather than permanently, as doing this could save on benefits such as health insurance, pensions and holiday pay.
Compare Prices
Make sure that your suppliers are giving you as good a deal as they say they are. Regularly phone around and see what is on offer. Also use the Internet to research and compare prices on offer.
Prepare for a Rainy Day
Always be prepared for periods of high demand on your cashflow. Numerous situations can place pressure on your cashflow, such as strong growth of your business, higher than expected tax obligations, a change in the demand for your industry, or a slump in the economy. By having a cushion to cover a cashflow shortage, it is easier to trade your way through this testing period.
Prepare a Cashflow Forecast
This will help determine if your business will have enough money to cover expenses. When you expect a shortfall, predicting this gives you an opportunity to arrange extra finance. If excess cash is expected, you can plan to use this excess more efficiently. Please refer to our Cashflow Forecast Wizard in our Tools Centre.
Finance
A clear way to help alleviate your cashflow problems is through a wide range of funds to finance your business' trading activities.
Short Term Finance
Overdrafts, Business Credit Cards, Cash Lines, Factoring and Invoice Discounting. For further information refer to our Short Term Finance guide in our Related Information section.
Medium Term Finance
Term Loans, Leasing and Hire purchase. For further information refer to our Medium Term Finance guide in our Related Information section.
Long Term Finance
Bank Loans, Equity and Business Mortgages. For further information refer to our Long Term Finance guide in our Related Information section.