One of the major mistakes that businesses make is to forget that profit is not the same as cash flow A business may generate a profit margin on paper and the business may be growing, but if all of the company’s money ends up getting tied up in stock or they end up unable to pay their payroll because they’re waiting for invoices to be paid, that profit means nothing. Cash Flow problems can kill even the most profitable of businesses.
Here are some simple ways to keep your cashflow in check and ensure your business’s finances stay strong and healthy.
Keep a cashflow forecast
You may have done a cashflow forecast when you first did a business plan when forming your company but many business owners fail to keep up with it. Setting cash flow targets for the next 12 months can really help you stay on top of your finances and help you to avoid any shortfalls by helping you to business plan effectively.
Stay on top of your credit control
Sometimes it can be difficult to find the time to stay on top of your invoicing and credit control and this can mean that payment terms can slip from some of your customers. Ensure you know your customer payment dates and keep on top of them if they don’t pay on time. It pays not just for your cash flow but in terms of good corporate governance. The fact is that a company that starts to pay late on a regular basis may be experiencing financial difficulties and could go bust.
Manage your stock
Having too much stock can really help to kill your business. Keeping on top of your stock management will help you to avoid poor purchasing decision and also have a positive impact on your cash flow, ensuring that you never hold too much stock and have all your money tied up.
Keep a track of your outgoings
When was the last time that you had a really good look at your outgoings? Over time, businesses can pick up a significant amount of outgoings that they may no longer need, such as subscriptions for IT products they no longer use. Going over your outgoings with a fine tooth comb will almost certainly find yourself saving a significant amount of money every month.
Finance can be tough to access for small businesses and for some new businesses, almost impossible to get from the conventional lenders such as banks. This can sometimes lead to some small businesses having no lines of credit available to them to which they can turn when a big order comes in demanding longer than normal credit terms. However, whilst it is difficult for small business to get finance from conventional lenders thanks to a lack of credit history, other forms of finance are available. Factoring, where you in effect ‘sell’ your invoices to a factoring company and obtain instant access of up to 90% of their value where the factor credit checks the customer, not the small business. That means that if your customers are creditworthy, so are you.
Don’t let cash flow problems ruin your business. Follow our advice above and keep on top of it and let your business grow and flourish. If you would like to discuss more about keeping your cash flow healthy by utilising factoring then call us on 01827 707680 for a free, no obligation friendly chat.