How to ease off your pain and stress with cash flow?

Keeping an eye on your company's cash flow is as important as watching the fuel gauge while driving a car. In fact, poor cash flow is a big reason why one in every four businesses won't survive its first year, and why more than half of businesses don't survive past the fifth.

So - if your company is running low on gas and you are not sure why, here are few tips to help you keep cash flow balanced:

1. Keep good books
You won't be able to figure out where the money goes if you don't track it. It is crucial that you track money movements such as:

• Invoices issued to clients
• Invoices paid by clients
• Invoices received
• Invoices paid
• Taxes withheld

A good manual book keeping system or a simple small business accounting software program can help you keep this information up to date.

2. Watch your accounts receivable
The longer the period between the date you issue an invoice and the date you receive payment, the lower your bank account balance can sink. To avoid cash flow issues, when you submit an invoice or a project proposal or contract, be clear what your payment terms and conditions are.

3. Follow up on bad debts
If a client is past due, you need not involve shady characters and baseball bats. Try emailing a friendly reminder with the details of the payment in the body of the message. It can read something like this:

Dear (client),
I wanted to follow up on the invoice for the work I submitted on last month on (date). That payment hasn’t yet come through. Could you please check on it for me? Here are the details:
Invoice number:
Invoice date:
Amount due:
If you have any questions or concerns, feel free to call me. Of course, if you have already sent payment, please disregard this notice.

An easy way to stay on top of these reminders is to schedule follow-ups to email messages, including phone calls, until you receive payment.

4. Schedule your bill payments
Schedule payment of your bills to happen on the day before they are due. This is what professional organisations like utilities and credit card companies expect. This is one tactic that slows the speed at which cash flows out of your business.

5. Make your terms work harder for you
Big companies sharpen their accounts receivable processes to maximise their own cash flow. Would any of their payment terms work for your business? If you think the answer is yes, implement the terms for a fixed period and track the results. If the changes in terms help you get your money sooner, they’re worth keeping.

6. Forecast your cash flow
Keep track of variances between forecast and actual cash flow. Unless your forecasts are off, those variances can signal issues you need to deal with. If you are not sure how to create a cash flow forecast seek for help to create a cash flow forecast with you being involved. You’ll be able to see which times during the year you can expect to see a cash deficit, and which times during the year you’ll expect a surplus. This will give you a pretty good idea how much cash will be required over the coming months to run your business.

Forecasting cash flow and then comparing actual figures against it can also help identify areas of the business that require extra attention. If you see an unexpected discrepancy between the two, you can examine further and identify where spending may be out of control. For example, your electricity bills may be climbing, which could indicate a need to review your building’s energy efficiency, or search for ways to save energy.

Young and small businesses often face cash-flow problems during the first few years. Paying close attention to these issues and troubleshooting along the way will help keep cash flowing into the business.

The Challenge for You:

Go do your homework and figure out what your current cash-flow situation looks like and how you can get to a cash-flow positive state. The life of your company depends on it. So, don’t put it off.

Need help? Send me a message - I would love to hear from you.

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