You need to strike a fine balance when it comes to controlling cash flow, because no business can continue if more money is going out, than coming in. We’ve come up with a few tips which might help.
1) Forecast your cash flow
Controlling cash flow and setting out forecasts is an important discipline of financial planning. Ensuring your company has the money to pay staff and suppliers regularly will keep your business solvent. Keeping up accounts and creating a cash flow management plan will also help in spotting potential cash shortfalls, which you can then aim to avoid. If you are unable to, then at least put a plan in place. Looking ahead and expecting the unexpected, such as unforeseen expenditures or a drop in sales, will help keep you one step ahead.
2) Introduce incentives for early payments and enforce late payment penalties
Late payments for money owed can be one of the most frustrating parts of running a business, so it is a good idea to avoid it where possible. Make it clear late payments will be subject to interest charges and enforce it. You could try encouraging early payments by offering an incentive, such as a discount or gift certificate within a specific timeframe. Offering customers a bonus scheme is good motivation for early payment, which will not help you in controlling cash flow, but is a great way to thank your client for their custom.
3) Monitor stock levels and reduce overheads
Keep tight control of your stock by being more efficient with ordering at the right times and do not be tempted to buy more than you need. Another way of cutting costs is by looking at ways to reduce overheads. Think about cutting staff overtime and decrease travel costs by encouraging tele-communications. Another smart way on cutting back is renting equipment instead of buying and if things are really tight you could consider moving to smaller premises.[rb_inline_related]
4) Revisit prices and increase income
If you have been in a business for a year it might be time to review your prices and possibly open up talks with current clients about contract renegotiations. Markets change so increasing your prices is not something that should necessarily be avoided. It is worth keeping an eye on your competitors to ensure your pricing levels are right. Providing it does not affect sales, increasing prices will help bring in profit, eventually boosting cash flow. However, decreasing prices may also boost sales if promoted in the right way.
5) Use technology to get organised
Keeping your accounts on Excel spreadsheets is deemed outdated as more people turn to sophisticated technology to keep on track. Accounting software packages can be integrated with your bank account. They allow you to easily see who owes you what and will automatically send your invoices out, along with payment reminder emails. Using online filing systems will help you streamline your workload and increase productivity as the time you would have spent poring over your spreadsheets and sending out overdue emails can be used elsewhere.
Hasib Howlader is director at London insolvency practitioners, Hudson Weir