Tips for Managing the Cash Flow of Small Businesses

There are a few more positive areas for small businesses to be aware of than cash flow. It is all very well and good developing a profitable business model, but if it is impossible to service this model due to a lack of cash flow and it is rendered completely useless. Thus, managing cash flow becomes an absolutely critical issue that any small company, particularly as by the very nature small businesses cash flow is likely to be tight.

So here are a series of tips regarding ways to efficiently manage the cash flow of your company.

Set Targets

The first tape may seem like a particularly obvious and facile one. However, you would be surprised how many businesses fail to an employee this very simple strategy. Set yourself a cash flow target. A simple way of controlling cash flow is by preparing and maintaining a cash flow forecast. This can then be updated on a weekly basis, and should provide a reasonably accurate outlook for a 6 to 12 month period.

Make Payment Terms Simple and Transparent

When working with other businesses, it is extremely helpful for the cash flow analysis of a small business if one ensures that all terms and conditions are both simple and transparent. There are also arrest the regulations regarding the financial settlement of contracts, and by keeping your terms as clear as possible you minimise the likelihood of any litigious circumstance.

Invoice Quickly and Accurately

It is a fairly straightforward concept, but nevertheless a valuable one. Is particularly advisable for SMEs to invoice as soon as they’ve completed work. For example, waiting a fortnight to invoice company implies that payment is not required immediately. The quicker you get the payment procedure going, the quick you’re likely to get the money, and the less cash flow problems you’re likely to encounter.

Make Payments Easy

Don’t confuse your customers with obtuse payment systems or sloppy invoicing. Make payments is easy and simple as possible. Another issue to bear in mind is being paid by cheque. While it may be necessary in some circumstances to accept cheque payments, it is generally preferable to avoid this given the amount of time it will take before the money arrives in your company’s bank account.

Offer Fixed Rate Payments

Another way that small businesses can ensure a preferable level of cash flow is to offer periodic payment packages. This strategy has already been adopted by many SMEs all over the world. Many small companies have reported that when an hourly rate is used it becomes incredibly difficult to predict income from one month to the next. To counter this problem, some businesses have developed retainer packages for a fixed number of hours each month, which are effectively build in advance. This enables companies to be paid up front as opposed to in arrears, and provides a lots of peace of mind with regard to cash flow.

Minimise Debtor Days via Payment Arrangement

Of course, some delay between invoicing and payment is essentially inevitable. Virtually no business settles its outstanding invoices as soon as they are sent, and even if you are fortunate enough to acquire clients good enough to do this, one can’t expect all clients to behave this way.

However, there are ways of minimising the gap between invoicing and payment. One nifty way of doing this is to establish direct debit as a business’ standard way of collecting receipts. Many SMEs that have utilise the system have found that cash flow has been greatly improved.

Make the Most of Technology – Particularly the Cloud

It would be fairly naive not to take advantage of computers and technology when monitoring cash flow. Particularly with the rise of cloud computing, collating, sorting and even analysing vast amounts of data has become logistically conceivable even for the smallest of businesses. So-called Big Data is offering huge opportunities to businesses all over the world, and this particular phenomena and has even been the subject of public debates between noted intellectuals.

Cloud computing also offers small businesses the opportunity to back up all of the data very easily in hassle-free fashion, and at an extremely low cost compared to traditional computing.

Additionally, accounting software, which can be purchased for any form of computer nowadays with the desktop based on mobile, can also be a great assistance in the process of monitoring your cash flow.

Focus on Cash flow not Profit

It is absolutely natural for businesses to focus on the bottom line; after all, this is what businesses are in the business of! However, it can rank somewhere between gullible and stupid to do this at the expense of paying any attention whatsoever to cash flow. Yet, many businesses have absolutely no cash flow strategy whatsoever. In fact, Agnes Cserhati of AC Powercoaching estimates that 90% of the SMEs she works with do not have a cash flow plan from day one.

So you can deduce quite easily from this information that if you do establish the cash flow plan from day one that you’ll be one of the 10% of SMEs they do have such a scheme in place. You don’t need to be Bill Gates to see that this will give you a competitive advantage.

Take Advantage of Bank Offers

Finally, banks will quite often offer new businesses a raft of useful products, such as overdrafts and other forms of credit. While taking on credit can sometimes pose a risk, it is always worthwhile investigating these opportunities, as they can often increase your cash flow while minimally increasing your overheads.