As the owner of a small business, you\u2019ll have heard countless times that cash flow is the most important part of a business\u2019s finances \u2013 cash flow is king etc. etc.<\/p>\n
That\u2019s because it\u2019s true.<\/strong><\/p>\n You can survive for a while without profits if you still have cash to pay for supplies and wages, but as soon as the cash stops flowing, so does your business.<\/p>\n The best thing a small business can do to become successful is to manage its cash flow properly, and avoid a negative cash flow.<\/p>\n Cash flow forecasting<\/strong><\/p>\n The most effective way to avoid any cash flow problems is to make forecasts.<\/p>\n You need to calculate your income and expenses and subtract one from the other. You can then extrapolate this to predict your finances in the future and plan accordingly. Once you\u2019ve performed a forecast, there are a number of things a small business can do to improve its cash flow.<\/p>\n Monitoring cash flow<\/strong><\/p>\n Devise a system that allows you to see exactly when you need to pay another business, and exactly when another business or client needs to pay you.<\/p>\n This will also help you work out when to send reminders if payments are soon due, or late.<\/p>\n Simple communication<\/strong><\/p>\n You should try to keep communication with clients as simple as possible to avoid confusion and delays.<\/p>\n This means making extra sure there are no mistakes on any invoices you send, and be quick in responding to any queries.<\/p>\n Punctuality<\/strong><\/p>\n The quicker you send invoices to clients, the quicker they can pay you.<\/p>\n How to avoid cash flow problems<\/strong><\/p>\n Most small businesses will occasionally find themselves with bad cash flow, but they\u2019re also the type of business most at risk from having a negative cash flow.<\/p>\n Here are a few ways to avoid problems:<\/strong><\/p>\n Upfront payments<\/strong><\/p>\n You could charge an upfront payment for goods or services.<\/p>\n Not only will you receive some of the money earlier, you\u2019ll see the client\u2019s ability to pay. If they can\u2019t pay a small deposit, they won\u2019t be able to pay the total. Discounts<\/strong><\/p>\n You could offer clients a discount for early payments, working out how much late payments cost your business on average to help decide how big a discount to give.<\/p>\n Look for flexible payment options<\/strong><\/p>\n You might find that if you pay more for a service, you\u2019ll be given the chance of having a more flexible payment option.<\/p>\n You\u2019ll be paying more in the long run, but you\u2019ll have more time to get the money together to pay.<\/p>\n Cash flow is more important than sales numbers<\/strong><\/p>\n You might face a time when your small business\u2019s sales start to grow quickly.<\/p>\n That\u2019s great, but don\u2019t let the good times be an opportunity for you to take your eye off the ball.<\/p>\n You still need to be vigilant when it comes to cash flow.<\/p>\n It doesn\u2019t matter how much money is coming in \u2013 if more is going out of the business, you\u2019ll face a cash flow disaster.<\/p>\n Credit checks<\/strong><\/p>\n If you\u2019re ever unsure whether a client will be able to pay, it\u2019s easy to get a credit check on them if it\u2019s a limited company.<\/p>\n If they have a poor credit history, you might want to avoid doing business with them.<\/p>\n Fixing cash flow problems<\/strong><\/p>\n Whenever you do find yourself in the unfortunate position of having cash flow problems, you\u2019ll need to act quickly to find a solution.<\/p>\n Here are a few ways to help fix cash flow problems:<\/p>\n
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\nImproving cash flow<\/strong><\/p>\n
\nYou might even be able to keep the deposit if the deal falls through, if it\u2019s written in the contract.<\/p>\n