Cashflow management is one of the most important aspects of running a successful business, helping you avoid financial difficulties and ensuring you have enough funds to operate your business smoothly.
But how can you increase the inflow of money into your business and limit the amount of cash leaving it? In this blog, we explain the best ways to do just that.
Create a cashflow forecast
Business owners need to create a cashflow forecast if you haven’t already. This will help you predict your future cashflow and identify any potential shortfalls before they occur.
A cashflow forecast should include all your expected inflows and outflows for the upcoming weeks and months based on your actual cashflow in the past.
No matter whether you use accounting software, such as Xero, a simple spreadsheet or accountant to create your forecast, it’s important to watch your weekly and monthly cashflow. By doing this, you’ll be able to spot issues early and know the extent to which you need to employ cashflow management techniques.
Control your expenses
One way to turn a negative cashflow — more money going out than coming in — is to control your expenses.
You should be vigilant about your spending and look for ways to reduce your costs without compromising on quality.
To control your expenses, consider the following:
- Explore an alternative place of business. Could you downsize, seek a co-working arrangement or promote a working-from-home work culture?
- Switch from print to digital marketing. All you need to market your business nowadays is time and a couple of free social media accounts!
- Be smarter about buying stock. Suppliers usually give discounts for bulk purchases. If you’re too small for that, is there another business near you that you could bulk order with?Use part-time and freelance staff. Use experienced staff for the amount of time you actually need.
- Keep track of your subscriptions. Don’t forget to cancel the free trials and subscriptions you don’t use before they auto-renew. If you’re going to auto-renew, you should see if you can find a product that does the same thing for cheaper.
- Don’t be afraid to haggle. Be prepared to haggle every day without embarrassment. It’ll take you far.
Seek out tax relief. Reduce the amount of money that flows out of your business in taxes. Small business tax reliefs, R&D relief and tax-deductible expenses — make sure you’re claiming all you can.
- Seek out tax relief. Reduce the amount of money that flows out of your business in taxes. Small business tax reliefs, R&D relief and tax-deductible expenses — make sure you’re claiming all you can.
Improve your cash inflow
The other side of effective cashflow management is quickly getting more money into your business.
Of course, getting more customers through the doors will help, but there are other cashflow management techniques you can employ today.
- Send your invoices right away. Your clients have their own cashflow worries, especially if they’re businesses. Give them their bill ahead of time so they can budget for it. Make sure to follow up with reminders, too. Use online accounting software, such as Xero, to keep track of all your invoices and manage your cashflow.
- Stay on top of your invoices. Be honest: have you ever forgotten to send out an invoice? That’s money that will arrive far later than your servicing expenses. Use invoice chasing software to timetable reminding clients to pay — Chaser, an app that integrates with Xero — is particularly good at this.
- Early payment discounts and late payment fees. Entice early payments and discourage late ones.
Product discounts. Have a lot of stock that you’re struggling to move? Reduce your prices or apply bulk-purchase discounts to turn stock into cash.
- Cashflow financing. If you’re expecting a temporary cashflow shortfall, you can get short-term financing to get the money you need into your business. One example is invoice financing, which pays out some money you’re owed from invoices early.
As they say, cash is king, so you must make your cashflow management airtight. However, you should always start with a forecast and regular analysis of the books. If you’re not, you’re going into cashflow management blind.
Need help with making a cashflow forecast or just want to talk about cashflow management in more detail? Don’t hesitate to get in touch.