Keeping Your Business Afloat
How to keep the cash flowing and you head above water by finance expert Ibolya Read
Cash determines the short-term viability of your business. How easily can you access liquid assets to cover your liabilities? Can you cover your payroll or supplier bills within the agreed terms? How you manage your debts and your credit terms are critical factors in your cash flow management. Don’t be a small business that fails because you did not see a cash flow problem coming.
Cash – its flow and availability – is the lifeblood for any business, and without it you can go bust even if you are profitable on paper. So, here are our top 10 tips for keeping your business afloat:
Management Accounting
Keep an eye on those crucial accounting ratios. For instance, increasing average debtor days can be a sign of a bigger problem.
Keep your finger on the cash pulse
Review your cash situation regularly to make sure that balances are in line with your budget. Analyse and act on significant variations.
Supplier management
Negotiate on payment and delivery terms. Are you getting the best value in return for your custom? Developing a good relationship with your suppliers will help you extend your credit terms, if required.
Cash conversion period
Review this regularly to see how you can reduce the time it takes to convert your product or service into cash.
Make it easy for your customers to pay
Ensure your order and payment process is quick, easy and convenient for your customer.
Credit control
Run credit checks on new customers. What is their payment history with other suppliers? Ensure that you get references.
Embrace technology
Are you operating in the most efficient way? Internet or telephone banking and BACS will save you money and speed up information flow.
Manage your customers
Consider offering a discount for early payment. Negotiate a phased payment schedule for large contracts. Charge penalty interest for late payment. Take a deposit or pre- payment at the point of sale.
Communicate
Keep lines of communication open in your business. If sales, orders or leads fall below a certain level make sure you know about it. On the other hand, beware of the risks of overtrading and communicate this to your sales function if orders need to be delayed.
Don’t work in isolation
Make sure that sales and marketing initiatives reflect the current requirements of changing your short-term strategy you could increase your cash flow. Remember, having a firm grip on your cash can save or even earn you money; with careful planning you can avoid interest or bank charges, spot bottlenecks in advance and even identify and invest surpluses to make your cash work for you.
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