When you're in business and making sure that ends meet, you need to rely on a variety of different reports and accounting conventions to keep pace. One of the most important metrics is cash flow, and you must always ensure that you are on top of this topic. But how can you manage cash flow to ensure that you always keep in the black in the bank?
Businesses spend cash for all manner of reasons. They need to pay wages, rent, utility bills, dividends, purchase stock, buy office supplies, etc. These expenses can often add up quickly, and in an industry with smaller margins, they can create some difficult moments.
Yet there are many reasons why people run into trouble when they don't need to. They could take some strategic steps to manage their cash flow to relieve the pressure and give them some additional room to manoeuvre.
Slow to Invoice
One of the biggest challenges for busy business owners who may not have a strong back office set-up involves invoicing. Do you ensure that you send out an invoice at the same moment as you supply goods or services to a customer? Or do you leave it until the end of the week and then catch up with sales from the previous seven days? This may not sound like a big deal, but it can make a huge difference when accumulated over time. Instead, set up a system so the invoice goes out immediately, and each invoice should clearly restate your payment terms.
Not Chasing Up
If some customers are slow to pay, are you leaving this slide? Again, this can add up and cause cash flow issues down the road. Have a system in place to follow up gently but firmly each time.
Carrying Too Much
If you sell products, do you carry too much inventory? If so, you may be paying too much, too early, and you need to service that outflow one way or the other. Try to reduce your stock line based on a "just-in-time" philosophy, and you'll be much better off.
If you haven't already done so, bring in a professional bookkeeper. They can certainly help you with your invoicing and revenues but can also give you some valuable advice to help you with your outflow. Reach out to someone for their help today and you can relieve some of the pressure.