Money talks: when it comes to the financial management of a growing business, keeping track of cash flow is paramount.
While businesses can get away with running at a loss when times are tough, they can only run out of money once.
Good planning and preparation means you’ll be ready to react to any challenges when they strike. What’s more, showing a bank that you’ve managed your cash flow well could go a long way towards getting that loan or overdraft extension you need to grow the business.
So when it comes to cash flow, what do you need to know?
1. Cash flow is king
There is no substitute for setting a regular amount of time aside to keep on top of your cash position. Depending on the requirements of the business, prepare cash flow projections for next year, next quarter or, if required, make it a part of your daily routine
2. Customers are key
Getting cash from your customers is critical to success, while taking steps to avoid delays is essential. Make sure there’s no room for error by setting clear payment terms at the outset, and by being accurate in the invoicing. Payment should be as straightforward as possible, which is why using an online portal is often good practice. If difficulties continue to arise, it is always worth having incentives up your sleeve to encourage faster payment.
3. Demand from your suppliers
When you are negotiating new contracts with suppliers, include the payment terms as part of the process. This way you can ensure there is no confusion and potentially improve your working capital position.
4. Power of technology
There are a number of cost effective tools available to help record your cash inflows and outflows and predict future tight points. These range from Excel spreadsheets to web based products that link with your bank/accounting software and avoid rekeying information. Online accounting software such as Xero makes it simple to reconcile your accounts, generate reports and more. Cloud based software means you can stay on top of your cash flow wherever you are.
5. When the going gets tough…
When your cash flow is in danger of posing a problem, build in contingencies for the unexpected. By preparing daily cash flow forecasts you will know exactly where you stand and avoid any nasty surprises. Minimise your expenditure by cutting surplus costs and whatever happens don’t bury your head in the sand. Early discussions with HMRC about PAYE/VAT liabilities is always best practice. Honesty is always the best policy, be upfront with your board and investors.
If you have any questions about steps to take to help your business manage cash flow, please don’t hesitate to get in touch.
Toby Rintoul | 0131 220 2203