6 key tips to improve cashflow
- Organise your books
When your books are disorganized, you don’t know how much income you’ve got coming in, what your expenses are or if you’re making a profit. Now is the time to organize your books for the New Year – look at your invoicing system and methods of collecting payment to make sure it’s as efficient as possible.
Once your books are in good order, you’ll be able to stay on top of how much each customer owes you and whether they’re paying you on time.
- Get rid of BAD DEBTS
In the New Year, get on top of your bad debts. Bad debts are amounts owed by customers that cannot be recovered. They can be crippling for your cashflow and can easily occur if you don’t have a good system for collecting money your customers owe you.
Sometimes bad debts exist simply because you don’t have enough time to properly chase your debtors. You might so busy running day-to-day operations that the last thing you want to do at the end of the day is chase up late invoices.
One quick solution to this problem is invoice financing, which can reduce the impact of bad debts on your cash flow.
- Balance your CREDIT TERMS
If the credit terms you have set your customers are out of sync with the credit terms set by your suppliers, negative cash flow can build up and worsen over time. In cases like these, there are some measures that you can set in motion:
- Debtor Finance: This is where a finance company lends your business short-term cash that is secured against the value of the invoices you have issued.
- Early Settlement Discounts: You could offer early settlement discounts on your invoices which will give your customers a financial incentive to pay you early.
- review your pricing
Naturally, lack of profit will lead to a lack of cash. Ultimately, no business can sustain losses indefinitely.
If your business is losing cash, it’s essential to uncover the cause of any losses and address them as soon as possible. Possible solutions to becoming profitable may be to increase your prices.
- Forecast your cash flow
With a cash flow forecast, you’ll be able to see which months you can expect to see a cash deficit, and which months you can expect a surplus. You’ll also be able to get a pretty good idea of how much cash your business is going to require over the next year or so to survive.
Having this information on hand means you can look at spreading out big purchases and investments – such as staff hires, marketing campaigns or purchasing equipment – so your cash flow is not affected.
- Don’t GROW TOO QUICKLY
Sometimes growing too quickly can cause cash flow issues that can hurt the business.
Entrepreneur Adir Shiffman founded a tech company that grew very quickly and discovered how dangerous unchecked growth can be. He says, “The company had always grown 50-100 per cent a year, with profits and cashflow sacrificed for growth. When sales first fell I confidently predicted they'd quickly recover; the salespeople just needed to work harder.
“I was always one cost cut behind where I needed to be, which inevitably necessitated another painful cut later. If only I'd cut earlier and more aggressively, the total cuts would likely have been smaller overall.”
If your business is enjoying high levels of growth, keeping an eye on your cash flow is more important than ever.