For small businesses, keeping tabs on what is coming in and going out of your finances is crucial to longevity and success. Business cash flow is often one of the major problems small businesses face, especially in their early years of trading, so it’s something you need to research, educate yourself on and aim to always be improving.
This blog post will give you tips on how to improve cash flow in a business and give you cash flow business ideas to help resolve any recurring issues.
What is cash flow?
Before starting to solve any business cash flow problems, it’s important to understand what business cash flow is. Cash flow is the amount of money leaving and entering your business accounts, and it can affect the liquidity of the business. The key to mastering cash flow is understanding when those transactions will be happening, predicting when there might be shortages, and addressing the balance before it causes problems.
It’s also important to remember that cash flow is different to profit. Profit is the amount of money a business takes away as financial gain and business cash flow is a term referring to the balance of all incomings and outgoings.
How can you improve your cash flow?
Luckily, if your cash flow is causing you problems, there are simple steps you can take to remedy the situation. As with all financial management, it can take months to see results, but it’s worth investing the time and energy to resolve any cash flow problems as early as possible.
Tip 1: Prepare and keep track of a financial forecast
A financial forecast is the easiest way to start predicting when cash flow issues might arise. You can look back over past business trends to help you align your forecast correctly, and there are multiple apps or software that can also help put an accurate forecast together. For best results, make sure you take note of all outgoings and incomings (down to the last detail).
Tip 2: Assess your outgoings
If your outgoings keep exceeding your incomings, or you’re finding that certain big bills or payments are making cash flow difficult – it’s time to tighten them up and make cuts. It could be something as simple as changing to a local or cheaper supplier, or maybe switching your provider to someone cheaper. Every little helps – and it’s surprising how little savings can result in big changes.
Tip 3: Have a safety cushion
If possible, make sure you have a safety cushion for when cash flow gets a little awry, and having that buffer can make sure you avoid going into an overdraft. Treat the safety cushion as ‘zero’ so you never dip into it unless in an emergency.
Tip 4: Adjust payment dates
A lot of providers are happy to let you choose your payment date. If you’re finding that payments are all going out at once, and leaving little (or negative) money in your account, then changing the payment dates on some accounts will really help. Banks, loan providers & internet providers are usually happy to change the direct debit date, you just need to ask.
Tip 5: Keep on top of receipts
Be prompt with your invoices and send out timely reminders if payments are late. Many people find themselves in cash flow problems because of late payments from clients or customers – so ensuring you’re chasing payments and sending reminders is key.
At Profile Chartered Accountants we have a wealth of experience in helping our clients stay on top of their cash flows. We are more than happy to discuss how we can help you and your business on the road to financial success so don’t hesitate to get in touch with one of our experts.