How you can better manage business cash flow
Behind every successful business is not just a great idea. One of the most important aspects to ensuring a successful business is proper money management. No matter how profitable your business is, inadequate cash flow management will cause poor business performance. These are the four tips you can follow to better manage business cash flow.
1. Effectively estimate sales volumes
Many success stories often revolve around stubborn optimism and perseverance. However, businesses need to accurately calculate and predict their sales volumes and profit margin in order to survive. Instead of simply using ballpark estimates based on sentiment, utilise quantitative forecasting methods to analyse industry data, buyer trends and past revenue data. Do ample market research and factor in variables such as marketing campaigns or new product launches when projecting the numbers. Getting a realistic estimate will allow you to optimise and plan your business activities more effectively.
2. Stick to your budget
Your business finances can quickly spiral out of control without a budget. Having a business budget is key as it allows business owners to not only plan for outgoing expenditure, but also keep expenses in full view for timely budget adjustments according to business requirements. A good practice is to keep track of finances, have proper bookkeeping and have a comprehensive budget plan. Leverage technology and professional accounting software – most software will enable you to project future cash flow based on past financial data for budget planning.
3. Be active in collecting past due receivables/invoices
Past due invoices may choke up daily operations and create cash flow problems. Your business must have a clear policy on a set timeframe for the client to make payment. To increase cash flow for your business, you could include an early payment discount in your invoice payment terms as an incentive for clients to make payment earlier. In addition, introducing penalties or stop work notice can be very effective in preventing late payment. It is also good to be proactive and send reminders to clients before the payment deadline.
Also, take advantage of early payment discounts if your vendors offer them for further business savings. However, do ensure there is adequate cash flow when making early payment so that it does not affect your business operations.
4. Having a cash cushion handy is easier than you think
We all agree that cash flow is critical in keeping the lights on in any business. Having a cash cushion is imperative in case of cash flow dips or unforeseen financial emergencies, such as a slow sales month or mounting past due receivables. However, running a small business often means having limited reserves. In this case, getting a small business loan or obtaining affordable short-term financing can help to provide that little extra cushion your business needs. The right financing can make a huge difference, enabling businesses to embark on expansion and further growth.
The key is to be proactive about managing cash flow issues and having suitable solutions or options ready. Whether it’s accessing financing from a bank or directly on a p2p lending platform, it’s smart to set up an affordable line of credit for emergencies, and only use it when it’s needed.