Cash flow is the lifeblood of your small business. Although it only offers a projection of growth and stability, these figures can often be enough to indicate where you’re going right and where you’re going wrong. Some business owners can turn tidy profits, whilst continuing to generate negative cash flow, all because they aren’t managing their assets effectively. Late payments, delayed invoicing or fastidious suppliers can all have a damning effect on your cash flow and, left unchecked, can lead to further complications with your finances.
In order to keep your business ticking over, it’s important to know exactly how the money flowing in and out of your accounts should be managed.
Inconsistent Clients Spell Financial Trouble
Nearly all small businesses thrive on repeat custom. If you are receiving regular payments from a set of loyal clients, then you can expect your cash flow to prosper. However, problems can occur when clients begin paying on a more ad hoc basis rather than completing a direct debit on the same day each month. Whilst delayed payment on a couple of occasions is never worth splitting hairs over, consistently missed payments can begin to take their toll on your business plan.
If your business expenditure relies on prompt cash inflow, then you can soon find yourself grinding to a halt. In order to improve your cash flow, you need to ensure all clients are paying on time. If any of them repeatedly fail to come up with the goods, then it might be worth severing your connection with them completely.
It Pays To Be Savvy With Your Own Payments
Whilst regular income will go some way towards fixing your cash flow problems, it’s not the only solution. Careful management of your own expenditure can also help you retain your money for longer. Say you’ve got the monthly utility bills to pay, as well as payments to a number of suppliers or wholesalers. You can limit the amount of money that leaves your account at one time by ensuring these payments don’t coincide.
For example, your electricity and rent might be paid at a fixed point in the first week of every month. However, payments to suppliers (especially ones you’ve established a good working relationship with) are unlikely to be as set in stone. If you can agree on a deal to pay these at the end of the month, then your finances will be stronger for longer and, in turn, so will your cash flow. Make sure though that you aren’t taking liberties and making payments long after the agreed date.
Keep Track Of Expenses Both Big And Small
Even in larger companies it can be tempting to ignore smaller expenses. But if you run a home business, then negligence like this can soon add up. Ensuring that all your employees know exactly what they can claim on and how far they can stretch these limits is paramount.
For example, a modest client lunch would be seen as a reasonable expense. However, a four-course meal at the country club is probably pushing the boat out a little too far. Over the course of the year, even small gestures can begin to take their toll on your bank account, so you need to make sure all your employees are operating on the same wavelength.
Manage Your Stock Purchases Carefully
If you’ve got more stock than you can shift, then you aren’t going to offset the money you’ve spent. Overbuying is one of the prime causes of negative cash flow and is often the result of poor communication between departments. If you delegate the purchase of stock to another member of your team, then you need to make sure they are informed when changes to an order are required.
However, you also need to be wary of stock shortages. Keeping a close eye on the buying patterns of your customers can help you prepare for the next month’s sales. If a product has sold well in recent weeks, then it might be worth increasing the quota for it next time around and making cuts elsewhere. Stock purchase is a balancing act at times, but can have a significant impact on your finances.
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