A million dollars might seem like a lot of money, but when you’re running a business, a million dollars can be completely meaningless if you don’t have it on hand. Any business owner will tell you that when it comes to gauging the health of their business, cash flow is king.'
Keeping a firm handle on your cash flow can be a struggle for any small business owner as there are many factors that must work together seamlessly. Your need to keep track of your accounts receivable and accounts payable as well ensure that you’ve earmarked funds for tax, superannuation and other overheads.
Meanwhile, you also have to factor in a number of unknowns, for example equipment can break down suddenly and require repairs or you’ll have invest in recruitment if a key staff member decides to depart suddenly.
With so many things to consider, how can you ensure that your cash stays flowing? Here are some tips:
- Collect receivables – for many small businesses, the focus is on making the sale. However, in the long run, the sale means little if the payment isn’t made in a timely manner. Ensure you have a process to collect on overdue invoices. It can be as simple as ensuring you send regular statements and reminders or employing the services of a collection agent.
- Negotiate payment terms – the simple formula to a healthy cash flow is to collect receivables as quickly as you can and then to hold off payments for as long as you can without incurring late fees or penalty charges. It’ll be worthwhile to negotiate extended payment terms with your suppliers. For example, signing up for asset finance with a monthly payment plan can help you manage your cash flow for the long term.
- Offer discounts on early payments – try to limit the amount of credit you’ll give your clients by tightening up payment terms. You can also incentivise clients to pay early by offering discounts.
- Stay on top of your financials – keep an eye on your cash balance and ensure you have a realistic forecast for the future. Pay attention to ongoing market conditions and changes to your client base. Do you know your cash balance today? Do you know what it’s likely to be in 6 months’ time? Always know the answers to these questions to get a handle on your cash flow.
No matter how big or small your business, cash flow is king. By keeping an eye on your cash, you’ll be securing the financial health of your business for the long term.
Author Bio: Paige writes about technology and finance in Sydney on behalf of a commercial finance provider.