How to make cash flow management a breeze for your small business

Banner image- How to make cash flow management a breeze for your small business
The phrase “cash is king” is a colloquial expression you may have heard a million times! It suggests that having cash on hand is more valuable than other assets, such as property or investments.
And yes, “cash is king” for sure for small businesses who can struggle to generate revenue and maintain a positive cash flow to stay afloat (and even weather the economic storm – thanks, recession!).
Cash on hand equips businesses to clear their bills, make necessary purchases, pay their staff, and handle unexpected expenses. However, all too often, small businesses find themselves in trouble due to the lack of oversight of their cash flow.
How can a small business manage its cash flow? Well, you need the right tools, knowledge, and resources for effective cash flow management. Here are some top tips to ensure your business not only survives but thrives:

1. Track your cash

Regularly monitoring cash inflow and outflow is vital to ensure that you have sufficient funds in your business account. You should have a designated person or team responsible for monitoring cash flow, especially when your income source is inconsistent, which could be the case initially. This will help you identify any potential cash flow issues and take corrective action before they become a problem.

2. Create cash reserves

A cash reserve is the safety net you need if something unexpected happens or you have money problems. Building a sufficient cash reserve can be challenging for small firms in particular, but doing so puts your company in a stronger position.

Banner Image- How to make cash flow management a breeze for your small business

3. Take out a cash flow loan

In times of negative cash flow, you may be able to benefit from short-term cash flow loans. A cash flow loan allows you to borrow money and repay it over time with interest in scheduled monthly instalments. A merchant cash advance which is a form of unsecured load, can also help your business during times of trouble and uncertainty. Always take independent financial advice before taking on a loan.

4. Extend the payables period

Negotiating longer payables periods and flexible due dates with suppliers can help you improve your cash flow. By extending the payables period, you can delay paying suppliers and improve your cash flow in the short term. You can also negotiate flexible due dates to align payment with your cash flow cycle.

5. Bank on cash flow forecasts

Cash flow forecasts, which usually look at the next 12 months, can help you figure out how much cash your business will need. You can plan for future spending and see if your business is performing as well as you thought it would.
A cash flow forecast typically comprises three elements: estimated sales, estimated payment timings, and estimated costs. To create a cash flow forecast, you should calculate your anticipated sales and expenses and note when you expect to receive payments.

6. Create cash flow worksheets

Cash flow worksheets are a valuable tool for preparing cash flow statements and evaluating changes in your business account balance. The worksheet typically comprises two sections:
  1. Cash effects, which are used to gather data disclosed in the cash flow statement
  2. Balance sheet effects, which are used to evaluate changes in your business account balance.

7. Prioritise managing cash flow

Prioritising cash flow management is crucial for your business success as it ensures you have enough funds available to meet your financial obligations and invest in growth opportunities. You can improve your cash flow and overall financial health by setting clear goals and strategies, such as increasing cash inflow through more efficient invoicing and billing processes.

8. Leverage the cloud for better control

Utilising technology can help you save time and improve the efficiency of your cash flow management. Cloud-based accounting software, such as Xero, can automate many manual tasks associated with cash flow management, such as invoicing and tracking payments. There are also standalone services such as that provided by GoCardless, which enable you to collect payment via a direct debit mandate and minimise time chasing clients for payment.

9. Separate your personal and business finances

Doing so will enable you to have better control over your finances, manage business performance, and analyse the revenue generated over a period. This way, you can see how much money is coming in and going out of your business, making it easier to make decisions. It is also essential to keep accounts separate from a tax management perspective.

10. Work on your sales strategy and close more leads

Boosting sales is essential to maintain a steady flow of cash, increase revenue and ultimately drive growth for your small business. You can acquire new customers through various channels, such as marketing campaigns, networking events, and partnerships. You can also focus on retaining current customers through exemplary customer service and loyalty programs.

11. Send out customer invoices promptly and follow up

Sending invoices promptly to customers is essential to avoid delays in receiving payments and hampering your cash flow in the process.
In fact, make it a habit to invoice customers as soon as their job is completed and follow up on any unpaid invoices to ensure timely payment for your small business. Ensure that making payments is easy for your customers.
Online payments are quick and convenient, and you can offer other payment options such as credit card or direct debit. Besides, encouraging prompt payments through incentives and strict credit terms can help you improve your cash flow.

For example, you can offer discounts for early payments or charge late fees for overdue payments. You can also implement strict credit terms to minimise the risk of bad debt.

Over to you
At Golding Accountancy, we understand the importance of effective cash flow management for small businesses. We know that every business is unique and that there is no one-size-fits-all approach to managing cash flow.
The good news is that we can help you find the best strategies for your business and provide guidance and support in implementing them. If you find that managing cash flow is not your area of expertise, we can provide professional assistance.
Our goal is to help you gain better control of your finances, optimise your cash inflows and outflows, and create achievable growth plans for your business. So let us work together to improve your cash flow management and set your business up for success. Contact us now to discuss your requirements.
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