5 HOT CASHFLOW TIPS
The number one issue keeping business owners up at night is…… cashflow! It is the biggest hurdle for most small businesses in managing their business, and stopping them from expanding. This can be for a range of reasons.
Most businesses experience seasonal peaks and troughs in business, yet overheads generally stay constant. Another problem with cashflow is debtors and how you manage the billing cycle.
If you can conquer your cash flow you can conquer your business! Here are our top 5 tips!
1. Create a budget
It is important to have a budget for a future time period (usually 12 months). In the budget you need to estimate expected cash inflows and outflows. You need to consider your sales cycle, terms and discounts provided to customers, and other factors that may affect incoming cash.
You also need to look at your overheads and expenses, including salaries and tax and other day-to-day operating expenses.
2. Measure your performance
A budget is not a set and forget. It needs to become a habit to sit and review actual performance against your expected performance. This should be done regularly (we recommend monthly). By reviewing regularly you can identify issues early and put plans in place to rectify or address problems. You have a much better chance of adhering to your budget if you are regularly reviewing your performance.
3. Review your bill cycle
Many businesses fall into the trap of billing monthly and then accepting a 30 day term of payment. This can mean that there is a 2 month lag from when the work is performed to when it is being paid. If you have staff you probably pay them fortnightly so you have quite a lag between when you are paying them for work performed and when you are getting paid by your customer or client.
Reviewing the billing cycle and payment terms can change your cashflow quickly. If you billed at the completion of the job (not at the end of the month) and then reduced your payment term to 7 days you would reduce the lag time and free up more cash quickly.
4. Ask for & give cash discounts
Because many businesses experience cash flow issues you might find you save money by asking your creditors for a prompt payment discount. You will save money and therefore keep some of your precious cash flow just by paying your bills as soon as they come in. For many businesses offering a discount for prompt payment may be worth it to ensure that they get their money quickly. You can also offer this to your own clients (especially those that have a history of late payments).
5. Make it as simple as possible for your customers to pay!
It may seem obvious, but make it as simple as possible for your customers to pay you! Ensure that your payment details are on every invoice, even if they have made payments to you in the past. Also ensure that you have several payment methods on offer such as direct deposit, credit card and PayPal.
If you have any problems with managing cashflow, speak to our experienced team today who can help you get on track with your cash management.
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