Cash is King… but it’s also the downfall for many small to medium business owners.
Monitoring and managing your cash is more important than anything else in business because it helps you answer the big questions:
- Can I pay my bills this week?
- Can I pay my staff this week?
- Am I charging enough?
- Do I need to refinance?
- Am I making any money for myself?
Here are our 3 top tips on riding the ups and downs of cash flow!
- Receive faster and pay slower
It sounds simple, and it is. If you’re struggling with cash flow, consider updating the payment terms on your invoices. If it’s currently 30 days reduce it to 14 and if it’s 14 days reduce it to 7.You may receive some push-back or outright refusal, so it’s important to manage those relationships carefully (perhaps you can transition those customers over a period of time), but ultimately it is important to get money into your pocket sooner rather than later.75% of invoices these days ask for payment in 14 days or less, so don’t be afraid. And don’t be in a hurry to pay invoices yourself! Make sure you’re using a modern accounting system that allows you to monitor your debt due dates easily. This will ensure you can pay bills on the day they are due – not before. This means the cash stays in your pocket for longer. Another win! - Chase your debts
If customers don’t pay on time, follow them up – that’s your money. Most modern accounting systems allow you to set up automatic email reminders which ensure you don’t forget. These reminders can also be proactive, reminding customers that their due date is fast approaching! If you’re too busy to manage this process or often find yourself with long overdue debts, you can outsource this role to a specialist debt collector. They will pick up the phone for you and track down that unpaid revenue! These people are absolute gold. - Forecast to get ahead of the game
Most cash flows are predictable (at least to some extent) so there really is no excuse to get a cash flow surprise. However, if you do often find yourself in the dark and unsure of what income is coming in this week, it might be time to chat with your accountant about how this can be solved! Forecasts can be done in short increments of time (weekly, fortnightly, monthly etc) – the shorter the time frame the more accurate the forecast. Depending on the size and complexity of your business a cash flow forecast could be as simple as this:
Remember, it’s just like a weather forecast. You can’t always change what you see, but you can prepare for it, just like an umbrella on a rainy day!
