For small businesses, good cash flow management is one of the most important factors in ensuring business success and longevity. A business may be turning a profit, but if it doesn’t have sufficient working capital to cover daily operating expenses, it can quickly find itself in hot water.
When it comes to winning the cash flow battle, it’s important to take the time to sit down and work out a strategy that will suit your business’s situation. Every business is unique, and the steps you take will depend on the specific problems you face.
With that being said, there are some general steps you can take to help your business boost its cash flow. If you’re not sure where you’re going wrong, read on for tips that will help you find out where to start.
Review your business’s financial situation
There’s no doubt that Covid-19 has had a huge impact on businesses across the UK. Some businesses will have saved during the pandemic, others will have spent. After what’s been a tumultuous couple of years, it’s crucial to assess the current financial health of your firm. Knowledge is power, and this power will enable you to create a business budget alongside more detailed monthly cash flow forecasts.
If you’ve been guilty of neglecting your business’s financial statements, it’s time for that to change. Moving forward, your income statements, balance sheets and cash flow documents should become your best friend. Make sure you keep them up-to-date and accurate.
As time goes on, this will give you a clearer picture of where money is moving across your business, and more importantly – indicate areas where spending can be reduced.
Invest in accounting software
If you haven’t done so already, it’s time to take advantage of technology and use accounting software to help you keep track of your business’s finances more effectively.
Not only do these platforms speed up your bookkeeping processes, they also offer helpful features like cloud access and spending categorisation. You can use this type of software to keep track of your business’s bills, ensuring you make payments on time and avoid incurring late fees.
Take time to find the right platform for your business. There are lots of accounting software choices for small businesses online, each with their own integrations, features and costs.
Tackle late invoice payments head on
A major reason why small businesses suffer poor cash flow is late and unpaid invoices. Unfortunately, recent research uncovered that UK SMEs are chasing over £50 billion in late payments, and it is estimated that the average small business is owed £8,500. To mitigate this, you must get serious about best invoice payment practice.
In order to maximise your chances of getting paid on time, make sure you:
- Get your customer or client to sign a contract that clearly states your payment terms
- Issue invoices promptly, as soon as the work is complete
- Send out payment reminders to clients at scheduled intervals
- Offer incentives like discounts or small rewards for early payment
Some businesses opt to eliminate lengthy payment terms altogether with invoice finance. This alternative funding solution is proving popular with small businesses, as it provides companies with the option to sell their customer invoices in advance, in return for a small fee. This means that instead of waiting upwards of 30 days to receive payment, you could access the money you’re owed the same day.
Consider equipment leasing instead of purchase
If your business requires a lot of equipment or machinery, it’s likely you’ve got a lot of money tied up in assets. A good alternative to buying equipment outright, is renting, or leasing the equipment. This allows you to make small monthly payments which not only help to reduce your tax burden, but also prevents you from losing huge amounts of cash in down payments.
Be careful if opting for business finance
A large number of businesses that are looking to increase their working capital turn to conventional business loans, but is this always the best thing to do? The rise of fintech solutions have seen a number of innovative funding products enter the market, some of which are better suited to small businesses that want to better manage their cash flow.
An example of this is a merchant cash advance. Suited to ‘merchant’ businesses that receive lots of payments via credit or debit cards, this type of product lets companies boost their cash flow and make flexible repayments that get automatically deducted from future card sales.
A final note
More often than not, managing company cash flow can feel like a never ending uphill battle. By implementing these strategies whilst focusing on increasing sales, over time you’re bound to see improvements in your cash flow management. Remember, cash is king, so don’t forget to treat it as such!
