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Cash flow management



 6 Top tips for effective cash flow management.

Many businesses struggle to manage cash flow adequately, resulting in many problems such as suppliers wanting payment, landlords demanding rent, tax and rates authorities asking for money, staff needing wages, and more

There are two main strategies to improve cash flow, increasing the amount of money coming in and reducing the amount going out.

: “Think of cash flow as a set of balancing scales, or a seesaw, the more goes out the more one side sinks, the more comes in the more the other side comes back into balance. Business owners ensuring that the incoming side is always larger will mean they always have enough money to pay overheads and material costs, pay staff, put some money away for future expansion or a rainy day and importantly pay themselves.

1. Know how much you need to break-even

“First you need to know how much you need to earn to cover your costs and establish your break-even point (the point at which you are making enough profit to pay your bills each week).

2. Set invoice timelines and terms

“If your business extends credit terms to customers it’s imperative to establish clear payment terms in writing before taking on a new client or supplier. Plan out when payments for invoices are expected, whether it’s immediately upon invoice or within a set time frame. Also set a clear credit limit, just as your own suppliers will when dealing with you, and stick to it.

“For particularly resource-heavy projects, ask for an initial deposit so you have some cash to cover any expenses. For example, if you’re a painter, ask your client for the cost of the materials before you start work. Then, ask for the rest of the payment upon reaching certain milestones or deliverables.

“Again, ensure that all this is recorded in black and white and that the customer acknowledges receipt of your email and accepts your terms.”

3. Cash flow over profit

“The secret to entrepreneurial success is all about how you manage your cash flow. Get that right and profit will follow. Always check your earnings against your break-even point.

“If you seem to be earning more than that yet money still feels tight, you probably have an issue with your accounts payable (money out), accounts receivable (money in) or you are not accounting for all your costs fully.”

4. Delay/reduce your expenses

“Cutting down on costs can be a good cash flow management strategy. If you have upcoming payments, see if you can negotiate for an extension. Even just a few extra weeks, or even days, payment time can significantly improve your cash flow. If you have unused equipment, cut down on storage costs by renting or leasing out equipment. Find other ways to increase your profit margins .

“Don’t get too comfortable with your suppliers, challenge pricing, and keep looking around for alternatives.”

5. Reduce your stock

“Clearing out old, out of fashion or damaged stock can really help kick-start a cash flow. Stock in the warehouse has value, but you cannot pay rent with it. Set a target to reduce your stock by and you’ll be surprised how quickly this can work and how it can boost your balance.”

6. Be persistent

“If you don’t ask, you don’t get. Set aside time each week to contact clients and ask them for payment. Remember, your job is to supply high-quality goods and services, theirs is to pay the bill. Customers who don’t, or won’t, pay on time are a distraction you can do without so make sure you keep on top of them and get your money on time.”

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