Good cash flow management has never been more important. The potential risk of late, non-paying, and lapsing customers is much higher as the cost-of-living crisis takes hold. This presents challenges for your business to ensure you can then make your own payments, including paying your staff, and yourself.
Recent surveys show that for SME business owners this is a particularly emotive topic, with 71% of having lost sleep worrying about the cash flow of their business.
So, how do you get a handle on your cash flow?
#1 Take stock and look at the situation now
Have you invoiced all the work you have completed? If the answer is no, or you can be a bit hit and miss in when you get your invoices issued, make this a priority.
Is your income steady month by month historically, or do you have peaks and troughs? If the latter, do you have cash reserves to tide you over the lows, or do you need to take action, such as to flatten those sales income troughs, or even seek financing?
Are you making late payments yourself? Is this a conscious plan, due to a lack of funds, or are you struggling to keep up with the admin? Staying on top of this can make a massive difference to your peace of mind, and willingness of others to keep working with you.
What would happen if one or more of your main customers ceased trading, or went elsewhere? How much of your income is reliant on a small number of customers? Consider how you can reduce that risk. Taking steps to prepare yourself for a financial shock, can prevent you going into the red.
#2 Know your outgoings and income in detail
Do you know your business running costs, fixed and variable, versus your average income?
How often are you reviewing your expenditure and reviewing whether all those costs are still valid and essential? Direct Debits can be a great place to start, where you can be paying for things you no longer need. It’s surprising how they add up.
Top tip - make sure you have an up to date 12-month cash flow forecast. This is an essential tool that does not have to complex. It is simply a forward view of your expected income and costs, based on your historical numbers, plus anything you know that may change.
There are a range of easy-to-use tools available online to help business track their spending, automate invoicing (and reminders!), and forecast tax and profits. Regularly monitoring profit from each individual revenue stream can help streamline your business activities and make sure you are investing money where you will achieve the greatest ROI.
By logging all of these, you will be able to forecast your cash flow more accurately. Being able to set a budget for any investment plans will also help you understand how that spend will affect your cash flow in the future, helping you make smarter business decisions.
#3 Put in place a credit control process
How often are you checking whether your invoices have actually been paid, and what percentage are being paid on time? If you have serial offenders who always pay late, have a conversation with them as soon as possible to understand why. The sooner you can do it, the less pressured that conversation needs to be.
From the outset make clear your payment terms with any new customers - when and how you expect to be paid and state your fees for late payment from the start.
With your own outgoings, when it comes to large purchases always look for an option to spread the cost. Also check to see if there are any accounts payable discounts. You could be missing out on taking advantage of paying bills early and in full.
#4 Ask for help when you need it
When it comes to addressing cash flow problems, the earlier you do it the better. Don’t bury your head in the sand - work with your accountant and bank to ensure financial difficulties don’t spiral out of control.
At TAB we work through business owners’ business plans – members have access to our exclusive strategic business planning process: The Business Builder’s Blueprint. Working together with your business coach you can identify potential problems such as cash flow and create a plan to protect your business and focus on growth.
