What does Cash Flow even mean?
Put simply it’s the total amount of money being transferred into and out of a business
The long and short of it is that if your business runs out of cash, it fails. It doesn’t matter if your P&L says you’re making 10s of thousands in profit this year if you don’t have enough money in the bank to pay your bills (particularly if you can’t pay staff) then its game over!
Having a positive cash flow means that more money is coming into your business than is going out and it’s as important as your bottom-line profit when it comes to measuring your business’ performance
Cash flow problems can arise for several reasons and can impact heavily on your ability to be able to grow your business effectively because when your cash flow management is poor you can’t make decisions on things such as employing staff, developing new products and investing in equipment
Here are my 5 easy ways to manage your cash flow
1. Develop a budget and review your spending regularly
It doesn’t have to be complicated. It can be a simple spreadsheet of your income and expenditure each month so that you at least know what the minimum amount of money is that you need to keep your business afloat and you can identify areas where you might be able to cut costs
2. Manage your inventory
If you sell a physical product then you should be clear on how much stock you are holding and its value to your business. Keeping an accurate inventory also helps identify if you are buying in too much and if you have stock that is hanging around your business too long tying up your cash. Is it time to ditch that product?
3. Take charge of your credit control process
Are you struggling to pay your bills because your customers aren’t paying you?
- Firstly, check that you have a clear process or system in place to ensure that customers are being sent invoices in a timely way.
- Then, reduce your payment terms if you need to so that money comes into your business more quickly than it is going out.
- Make sure that your system allows you to easily identify late payers so that you can chase them up
- Don’t be afraid to charge late payment fees!
4. Make use of technology
Using software to track your cash flow, or even better to manage all your bookkeeping, will make your processes more efficient and more accurate. It will also save you time, money and stress because you aren’t constantly scrabbling around trying to keep track of what you owe or are owed
5. Don’t expand until the time is right
Growing and expanding your business is exciting but if you try to expand at the wrong time, you’re more likely to encounter problems in the long term. Growth requires cash and if you don’t have the funds available to match your growth then you’re going to have issues. Manage your cash flow effectively and you’ll know when the time is right
Sneaky little no.6 (just because)
Think about outsourcing!
Time and again studies have shown that around 80% of businesses that fail do so because they have cash flow issues. Don’t let that happen to your business! Think about asking for help by outsourcing your cash flow management and get someone else to help to keep on top of the financial health of your business so it’s one less thing for you to worry about!