In these hard times, lots of businesses are looking for quick fixes for cash flow problems so here’s some tips for start up businesses on how to manage their cash flow smartly. There are basically two fundamental goals at the heart of improving your cash flow:
- control your expenditure
- regulate your income
1. Understand flow of money throughout your business
Understanding the flow of money through your business is one of the first steps to good cash flow management. It requires accurate and up-to-date information. Whether it’s a small or large business, you should be routinely receiving a regular stream of data about your numbers – budgets, debtor books and cash flow forecasts should be readily accessible.
2. Diversify if you have a seasonal business
All businesses inevitably have differing levels of expenditure and income which effect cash flow if not managed effectively. For businesses that income is affected by seasonality often results in high costs during their quietest period.
3. Establish debt chasing procedures
Credit control and debt recovery are important for good cash flow management. PricewaterhouseCoopers research indicates that nearly one in five companies regard current debt levels as the ‘biggest threat’ to survival.
4. Understand customers payment cycles
If you are a business with clients then more than likely they will have set dates in the month when they pay invoices, so it’s a good idea to incorporate that into your credit control system. Otherwise, if you miss a customer’s cheque run you might have to wait another month and that directly affects your cash flow.
5. Invoice accurately
Research from PricewaterhouseCoopers found that around 85% of the reasons given for non-payment by business customers relate to invoice queries or poor administration. It’s essential to get the basics right, such as invoicing the right amount and sending it to the right place.
6. Use a 3rd party to collect your debts
If all else fails and your cash flow is suffering as a result of large quantities of cash tied up as unpaid debt on your books, consider outsourcing the work to a collection agency. Although they have a mixed reputation, figures from the Credit Services Association (CSA) trade body indicate that its members recover up to £5 billion each year.