Managing cashflow is critical to keep your business running but it can be all too easy to overlook this aspect of your finances. So, what is cashflow and how can you manage it?
Think of cashflow as the money that is entering and leaving the business, with the difference being what is available to be spent. Remember that cashflow is different from profit and loss. Confusingly, it is possible to be making a profit and have poor cashflow, or to be making a loss yet have lots of money in the bank.
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You may be doing a lot of business, but if there are periods when there is little money in the bank you could be in difficulty.
Here are some practical tips for managing cashflow.
Control your costs
In uncertain times it is vital to stay on top of your expenses. Everything you save on your costs is a boost to your cashflow. Be imaginative about how you can reduce costs. Are there technological solutions that could reduce overheads, or are you paying for services that you could do without?
Renegotiate with suppliers
In times of disruption and uncertainty it is not unreasonable to ask suppliers to take another look at what they are charging you. A discount, however temporary, will be to your advantage. Think about how you can make the negotiation successful, perhaps by offering a longer-term contract with the supplier.
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By GlobalDataAsk for more time
Being given more time to pay your suppliers will give your cashflow an immediate boost. Your suppliers will want to keep your custom and may be in a position to extend your payment terms. You won’t know if you don’t ask!
Stay on top of your billing
Small business owners can struggle to send out invoices because they are simply too busy. But let day-to-day tasks distract you from billing customers and you’ll be creating cashflow problems for the future.
Request a deposit
In some sectors it may be possible to ask for part of the invoice to be paid when the order is placed. Any form of initial payment will help with your cashflow and this approach can be successful with new customers who may not have an established credit history.
Reconsider your payment terms
There can often be scope to renegotiate payment terms with customers and clients. Every day you can shave off the time between invoicing and payment will help boost your bank balance. Be flexible and try to identify something you can offer to make your proposed new terms more attractive. This could be extra support, a discount or some sort of additional goods or services.
Chase your debtors
Asking people to pay their invoices is no fun but it is a task that needs to be done regularly. If you can’t do it yourself then consider employing someone who is experienced at chasing payment. It is also worth looking into apps and other digital services that can automate the process and reduce your workload.
Be aware of tax
If your business faces tax bills then be aware, as they can come as a shock, especially to your bank balance. It is important to know how much you need to put aside for any tax payments or similar outgoings. Work with your accountant if necessary to make sure you have the funds set aside in advance.
Forecast your cashflow
Take time to look ahead and predict how your bank balance will look in future weeks and months. Longer term forecasting will never be 100% accurate but it can make you aware of problems before they happen and allow you to take action.
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