New startups should fully understand that running out of money is one of the primary reasons that businesses fold shortly after launch. This article includes tips for better business cash flow management and how to avert this kind of crisis.
Cash flow management, however, is not easy. Small and medium-sized businesses SMEs usually find it difficult to handle and manage cash flow as they often find themselves in constraints of current liabilities and need financial advice and solutions.
Getting financial advice will also promote better tracking of assets, expenses as well as all liabilities making the business much easier to manage. Here are a few tips to go about it.
1. Anticipate future cash needs
Keeping timely and accurate accounting records for your business allows you to build a forecast based on historical results. This forecast will enable you to be prepared for historically difficult periods or seasonal trends.
Also Read: How to reduce credit risk in your business
2. See if payments to suppliers can be extended
On the other side of the coin, check on the credit terms that your small business’s suppliers allow. Most suppliers allow thirty days to pay but you may be able to get them to extend that term to sixty or even ninety days, allowing you to keep the money in your cash flow pipeline longer.
This will give you the chance to have more liquid cash to cater for expenses as well as other short-term needs.
However, caution should be taken in order not to pay late fees as some creditors usually input this.
3. Tips for better business cash flow management using charts
Using charts help monitor expenses and assist you to see the bigger picture. Charts also give you statistics on the growth and performance of your business.
This can also help in future projections and decisions.
Charts also play a big role in making decisions such as cash reservation and financing options when the business run in shortfalls.
4. Make payments easy for customers
Making payments should be made as easy as possible for your customer. Online payments are a much better option.”
5. Tips for better business cash flow management using cost-cutting
Streamlining costs by regularly moving to the best tariffs and deals may seem simplistic, but significant savings can be made in this way.
Providers will not want to lose your business, and the threat alone could be enough for them to offer a better deal that allows you to save money on a monthly basis.
Also Read: Tips on how to get a small business loan
6. Prioritise credit control
As a director, you need to know how much money is owed to the company at any given time.
Prioritising the collection of monies owed will help to maintain a positive flow of cash through the business.
This can be achieved by setting up a computerised system providing notification when a payment is late and reducing the overall collection period.
7. Regular monitoring
Regular cash flow monitoring gives a business a sense of direction.
Cash flow projections also enable the business to identify seasons when there will be surplus and when there will be shortfalls in order to foresee and plan operations.
This is by investing in cash reserves and looking for financing options in case of need.
These might include invoice factoring, invoice financing or logbook loans. Projections can range from 12 months to 3 years depending on the needs of the business.
8. Improve profit margins
Raising prices may not ordinarily be your action of choice, but carrying out an audit of your finances could reveal some room for manoeuvre.
Negotiating better deals with suppliers will also help to improve profit margins.
Also Read: 12 most profitable business in Kenya
9. Be Honest To Yourself
For good cash flow customers who make late payments should be avoided at all cost.
It might sound absurd but turning away a client who insists on paying in more than 90 days will be more to your benefit than cost.
This is because customers who require a long time to clear off their debts might put you into constraints thus hurting your profit margins as well as your operations.
10. Tips for better business cash flow management by renegotiating contracts
Landlords, lenders, and contractors are not impervious to changing economic conditions so trying to renegotiate is worth a shot.
For instance, if the lease on the premises of your bricks-and-mortar business is up, you may be able to negotiate a more favourable rate with your landlord – especially when another retail property is standing empty.
A less expensive lease will let you free up more of your cash each month and get more of a cash flow going.