One of the main reasons why businesses struggle is down to their cash flow. When your account does not contain enough money to pay your suppliers and employee wages, it inevitably caused difficulty. Borrowing may stave off problems in the short term, but interest charges can also add to the financial burden.
By effectively managing your company’s cash flow, it is possible to meet your business responsibilities whist drawing your own wage and paying your employees on time. There is a saying in the finance world that cash is king, and if this is the case then we should create systems to serve this monarch more effectively.
The key to all cash flow problems is management. By understanding your business, building plans and ensuring they are fully implemented, it is possible to predict many situations and develop contingency to navigate more difficult times. In this article we look at four of the main ways in which you achieve better cash flow.
Establish an Effective Debt Chasing Procedure
Amongst the biggest problems that today’s businesses suffer from is problems with payments from clients. Sometimes it seems like the larger the client, the more likely they are to drag their heels with monies owed. Alongside the deficit in your accounts and time wasted contacting the client to try to resolve the issue, this often causes a considerable degree of frustration that can affect your day to day operations.
The key to managing outstanding debts is procedure. By implementing a spreadsheet of outstanding debts it is possible to track phone calls and the amount of times an invoice is re-issued. Remember that the longer a debt goes unpaid, the less likely it is to be paid. Set a limit on the amount of time you are prepared to let any debt remain outstanding and employ a suitable third party to collect your debts when this limit is exceeded.
Organise Financing Arrangements
Sometimes large payments can cripple your cash flow and leave you struggling to find that extra money. Rather than paying for high ticket value items like manufacturing equipment or vehicles, put together a payment plan that allows you to spread the load of purchasing. If you cannot comes to an arrangement with your supplier consider alternatives such as asset financing and hire purchase.
Equally if your business is engaged in a large project that is likely to demand the attention of all your resources, then why not ask the client for payment across a number of stages? Alongside an initial down payment it is not uncommon to set up a series of milestones, which when successfully reached trigger further payments, thus easing the load on both you and your client.
Understand your Customer
It may be that your customers are also having problems with cash flow. By maintaining a good channel of communication with them it may be possible to anticipate problems with payments and clearing outstanding debts. Additionally, it may be the case that larger clients have a well defined payment schedule and if you fail to submit your invoices on time then it could be the case you have to wait a further 30 days to receive your money.
Customers also like to build up relationships with suppliers. Consider offering repeat clients a loyalty discount or some other incentive, such as a bulk buying bonus that makes your service more appealing than your competitors. This way you trade off a small drop in profit margin for a more assured flow of money into your accounts.
Invest in your Business
One of the maxims that’s eternally bandied around the financial world is that “you have to spend money to make money”. However there is more than a grain of truth to this one-liner, with businesses that invest in processes that help find more clients and win business standing to dramatically improve their financial outlook.
Rather than celebrating your success with status purchases, invest your profits into marketing, advertising and business networking. Focus on activities and customers that give you the maximum returns. Do not be afraid to be ruthless in cutting ties with clients that take up all your time with endless calls and speculative activities, which ultimately come to very little business.
If your startup business is having difficulties achieving cash flow then why not talk to Leading UK Strategies? We can provide you with the essential advice and expertise to help you reach your goals and objectives – call us on 0800 246 1845.