With the cost of doing business constantly on the rise, effective cashflow management is more important than ever. Keeping an eye on how money flows in and out of your accounts won’t just help you pay your bills each month: it can give your business a better chance of success.
Here’s what you need to know.
What is cashflow management and why is it so important?
While some business terms can be unnecessarily complicated, cashflow management is exactly what it sounds like: managing how cash flows in and out of your business.
Monitoring your income and expenses over a given period can help you paint a more accurate picture of your business’s financial health. The better you understand your cashflow, the easier it’ll be to anticipate and address potential issues ahead of time.
For example, if it looks like you’ll be short on cash in a few months, you may be able to free up some working capital in the meantime by increasing your sales or cutting costs in certain areas.
Even if business is booming, keeping an eye on your cashflow is essential. You need to make sure you bring in more than you spend each month, or you could end up making a loss.
Tips for managing your cashflow
Free up working capital
Freeing up working capital is essential if you want to maintain a healthy cashflow. Beyond reducing things like your travel expenses or electricity usage, potential cost-cutting measures include implementing an efficient tax strategy and leasing equipment instead of buying them.
You could also consider asking your bank to increase your loan or overdraft to help you stay in the black.
Keep your books up to date
Cashflow reports are based on your financial data, so you’ll need to make sure your books are up to scratch.
If you don’t have time to stay on top of bookkeeping tasks, we’d highly recommend hiring a professional to take them on for you. After all, your cashflow forecasts are only as reliable as the records they’re based on.
Build a safety net
Building a cash reserve can also strengthen your cash position. By setting some money aside, you’ll give your business a better chance of survival if something goes wrong.
Saving up enough money can take time and might involve tightening your purse strings in some areas, but you’ll be thankful for the safety net if you fall on hard times.
Identify late-paying customers
Even if your pricing plan is perfect and you’ve cut costs in all the right places, you could still struggle to make ends meet if your customers don’t pay you on time. At best, late invoices are an inconvenience: at worst, they can leave you short-changed when it comes to paying your own bills.
Thankfully, there are a few things you can do to address this problem. For example, you could use electronic invoicing software to generate and send invoices to your clients automatically.
If sending reminders to late-paying clients or adding interest to their bills doesn’t get you anywhere, you could try offering discounts for those who pay ahead of time.
In cases where a client makes a habit of missing payment deadlines, however, it may be worth reconsidering your relationship with them. Poor cashflow can do damage to your business, and working with an unreliable client may not be worth the risk.
Experiencing cashflow problems? Contact us to find out how we can help.