When You're In Business, Cash Is Always King!
But how do you keep the money flowing?
POSTED BY KIRSTY PARRIS ON 23/11/2018 @ 8:00AM
''Turnover is vanity, profit is sanity, cash is reality'' You may have heard this saying, but what does it actually mean? Controlling cash flow is a business owner's prime financial task and for many SME's, the hardest to control – particularly during periods of growth ...
Far too often small businesses are profitable, but they do not have enough operating capital to meet their current needs. It is critical that it is understood where cash flow comes from and how it is spent, since this can make the difference between financial success and complete disaster.
The purpose of cash flow forecasting is to predict at what point the demands on an organization's cash resources become so great that the cash is exhausted, whether from normal business demands or planned growth. When operating cash flow is negative, there are four levers that can be pulled to improve it:
make more profit
Even with an upturn predicted, cash is still tight and customers are much less likely to pay within 30 days, if at all. Here are a few tips to help you manage cash flow in your business:
For large customers you may need a signed contract and a purchase order. Find out what you need and their payment terms in advance.
For smaller customers, make sure you agree the price in advance so there is no query on your invoice and, if possible, find out the name of someone in the credit control department in case of a query.
Invoice immediately on completion of the job, or if appropriate take a 25% or even a 50% deposit upfront with the remainder payable on completion.
Issue your clients with payment terms and don't be afraid to ask for your money! Don't feel you have to put 'payable within 30 days'. You can, if you wish, put 'payment on receipt' or a due date within 14 days. If you don't ask, you won't get.
It is worth taking the time to find out immediately whether payment has come through and if you use the right accounting software, your bank balance will update regularly so you will know straight away.
If you don't receive the money when you expect it, ring your contact in the business and find out why. Why not send an email? Because emails are too easily ignored. Your contact may be able to chase up payment for you, or give you the number of the person you need to speak to in their accounts department.
The two other main areas where you can control cash flow are stock and suppliers. Keep a close eye on your stock, as perishable stock or slow moving stock can suck cash unnecessarily from your business.
Finally, check your suppliers' credit terms and use them. Bear in mind however that your long term relationships with your suppliers are the lifeblood of your business and they will respect you and respond to your needs if you always pay on time.
Do you need some help improving your cash flow? Do you need proper procedures for your invoicing and credit control? Call me on 07521 790284 and let me help you put the processes in place that will ensure money comes into your business on time, every time!
Until next time ...
If you're interested in business coaching and my blog post has inspired you to find out more, then why not visit my website which you can find at www.andromedaconsulting.co.uk and let's arrange a free consultation!
I'm Kirsty Parris and I specialise in helping business owners, like you, to realise the true potential of your business. Whether that is getting you back on track with your business plan or helping to devise and implement new plans that you never thought possible.
Some of my clients see me as a coach, a mentor, a consultant and some even as a financial therapist!
Based near Milton Keynes I primarily work with owner managed and family businesses between London and Birmingham.
I offer a broad spectrum of business development services including business coaching, business growth planning, sales and marketing support, personnel support and systems reviews.
I am not just another business consultant as I see the job through with implementation should you require it and I will work with you on a retained basis as an addition to your team or on a project by project basis...your call...and there is no tie in. You work with me for as long as you are seeing the results.
Your minimum requirement? You need to be ambitious enough to reach or exceed your personal and business potential. Together we will make it happen!