Small businesses and startups will need to understand the importance of managing their cash flow from the outset of their business. Managing cash flow wisely will ensure that you have enough money coming in to pay for business expenses until your business starts making profit. We will look at a few steps that can be implemented to ensure that you keep a positive cash flow.
Prepare and maintain a cash flow forecast
Ensure that you have more money coming in than being paid out. This will allow your business to make it through its first years of business which will lead to success. Having enough money to pay all your bills is challenging for all new businesses. By using a cash flow forecast you can predict what money will be coming in and going out. This forecast can be updated weekly and a relatively accurate cash flow position can be established for 6 to 12 months.
Work with reliable customers no matter what their size
When your customers are reliable and pay on time, even if they are small accounts, this will help you gather money in to pay for your monthly expenses and hence alleviate the stress on your cash flow.
Establish payment terms with customers
By establishing payment terms right from the start of your business relationship, will help alleviate any misunderstandings with your customers. It will also be easy to predict your cash flow forecast as you will be actively waiting for payment from customers at that specific date. Remember to set payment terms at 30 days and no more for your customers.
Invoice as soon as work has been completed
As a small business, it is advised that you invoice your customers as soon as work has been completed. All invoices should be sent via email so that you have written proof with a set date and time.
Provide easy payment options
Make it easy for your customers to pay you by providing them with many easy payment options. Online payments are the easiest and most convenient payment option and the quickest.
Secure long payment terms with suppliers
It is best to try and get long payment terms with your suppliers. If possible try and secure 60-day payment terms. Ensure that you pay on time especially if you have been given favorable payment terms and in addition large suppliers will charge interest on late payments.
Use Cloud based Accounting Software
Cloud based Accounting software packages will allow you to access your cash flow forecast, bank account and customer accounts from anywhere 24/7. This will reduce time and stress as it allows you to access these accounts on your laptop, tablet or Smartphone. You can ensure that you have enough money to cover expenses, invoice customers even if you are at home and pay expenses and suppliers at any place and anytime.
Assign an employee to monitor cash flow
By assigning the job of monitoring cash flow to a specific employee, they will be able to monitor money coming in and going out. If you do not assign a dedicated employee than you must ensure that you check your cash flow status daily. It is advisable to have a set threshold amount, i.e. if your cash flow goes below £500 than your employee must advise you immediately so that you can make contingency plans to ensure that all your expenses are payed on time.
Develop a good relationship with bank
As a small business, your bank may be able to provide you with credit cards and overdrafts to help you manage your cash flow shortfalls if they occur. It is best to advise your bank as soon as possible if you suspect that you may have cash flow problems so that you can arrange some sort of help from your bank to ensure that you are able to pay for all your outgoings.