If you asked me what the single most important factor differentiating a successful business from one that’s struggling, I’d shout, “cashflow!” Having positive cash flow enables your business to meet its obligations every month, while still having the funds available to grow and take advantage of opportunities.
If you’re struggling with cash flow issues in your business, then try these tips to reach a more stable situation:
1. Send invoices out immediately
You can’t get money in the bank until you invoice for it, so make sure you’re not letting those invoices pile up.
You can use online accounting and job management systems to make invoicing less painful, and allow you to invoice from any device, even if you’re out at a client’s site.
As well as getting those invoices out, you need to keep an eye on your accounts receivables, and chase up those clients that are overdue on payments. If you are having problems with customers paying on time, create incentives for early payments and penalties for late payments.
2. Reduce your overheads
As a bookkeeper, I often discover negative cash flow around fixed assets with ongoing monthly payments, such as vehicles and business equipment.
You may be able to reduce monthly overheads by leasing company vehicles and machinery rather than buying them outright.
Check to make sure you are getting the best price on your insurance, phone and other regular expenses. Shop around and don’t be afraid to change providers to get the best deal.
You can also save money on a high power bill by using LED light bulbs and low energy appliances, such as computers.
3. Reduce your inventory
If you hold a lot of inventory, it could be key to cash flow success.
Check your inventory regularly – Are there items that don’t sell well? They are tying up cash.
Instead of buying more of what doesn’t sell, get rid of it – even if it means you need to sell it at a discount. Spend the money and the storage space on your ‘bread and butter’ items that turnover more quickly.
Having too much stock can incur storage costs and tie your money up, while too little stock can mean loss in sales and a breakdown in customer relationships. The key is to get the balance right. Consider stocking only fast-moving inventory and possibly arranging for your supplier to directly ship custom or slower-moving stock directly to your client.
4. Negotiate longer payment terms with suppliers
If you’re having trouble because of cash flow issues, there may be an opportunity to re-negotiate contracts with suppliers with whom you already have an established relationship with.
Many businesses will be willing to work with you if they know they’ll be able to keep you as a customer for several years to come.
You have nothing to lose in trying this. In fact, you may find by contacting them that they’ll offer you a small discount, or you may discover that you have add-ons or extras you no longer need that you can cancel.
When contacting the supplier, make sure you speak with the decision-maker, as they’ll be in the best position to offer you a deal that work for both parties.
5. Create a cash-flow forecast and keep on track
Forecasting your business cash flow helps offset uncertainty by predicting peaks and dips in your cash balance. You can see a cashflow forecast on a monthly and yearly basis. This can help you plan ahead to avoid shortfalls
A rolling 12-month forecast is best practice, and that’s what we give our clients. If you have been trading for over a year you can use last year’s payments and inflows as a base for the cash flow
To create a cashflow forecast:
- Write a list of payments you need to make over the year (stock and equipment, wages, rent, taxes, etc).
- Write a list of what’s coming in (Sales, interest and investments, etc).
- Get your tax payments right. If your residual income tax is greater than $2,500, you may have to pay provisional tax in the following year, so make sure to include this.
- Subtract the outgoings from your ingoings.
- Regularly check the forecasted cash flow against your actuals, and adjust as the business grows.
With more cash flow in your pocket, you’ll be in a much better position to take advantage of opportunities to grow your business in 2018.
At Bookbird, we provide you with that year-round visibility that’s so key to being successful in business, all while taking a stressful job off your hands. Go on, reach out to the team at Bookbird about your business needs.