Cash is King
In Business, there is almost nothing more important than cash; whether it's for payment of wages, salaries, VAT or PAYE; the requirements for having cash and the consequences of having none are obvious.
The economic downturn has meant that many small and medium-sized businesses have experienced tighter lending criteria from banks and are faced with having to review their funding arrangements; so maximising cash flow remains a crucial factor for business success.
Poor cash flow will not only restrain the ability for your company to grow but at worst will undermine its ability to survive. While a business CAN survive for a short time without sales or profits, without cash it will ultimately die. For this reason the inflow and outflow of cash need to be carefully monitored and managed.
Here are our ten top tips for maximising cash flow:
Accurate forecasting: This remains the single most important business tool, always keep an updated cash flow forecast, so you always know you have enough money to meet your commitments.
Know your customer: Always know who you are trading with; check credit agency report, references and talk to their existing suppliers.
Know your product/service: What products or services generate the most gross margin? consider how your product/service sales cycles work. Typically 80% of your margin will come from 20% of your product or service. Don't waste time and effort chasing in cash and paying suppliers for something that adds nothing to your bottom line, or worse still, loses you money.
Processes are key: Remember cash is the life-blood of your business so make sure that you have a process in place for managing your cash flow. Issuing invoices, chasing payment and managing customers who don't pay, should all have a process in place and processes that ultimately deliver results.
Invoicing: Consider minimising the payment due date on your invoices. Remember if you say 30 days, you won't get paid until day 45 or later so you might as well put the earliest date possible.
Dealing with non-payment: Non-payment is, of course, a serious threat to your cash flow, so devise a strategy for dealing with customers who demand longer to pay. Make sure disputed invoices are investigated and resolved straight away.
Prioritising suppliers: Consider which of your suppliers are crucial to the success of your business? treat them like employees and pay on time unless cash flow dictates otherwise.
Other suppliers: Treat them fairly and let your suppliers know that you do one payment run a month and it's on X date. Depending on the size of your suppliers, some will accept and some will dictate to you.
Monitor stock: Don't keep cash tied up in stock. Knowing your sales volumes will help you keep track of how much stock you should be holding.
Know your rights: When all else fails and a payment owed to you becomes a 'bad debt,' there is the option to take legal action.
Remember there is no hiding from the cash position of your business.
If you would like to talk further about the importance of cash flow in your business, then contact us for further information.