10 Top Tips To Improve Your Business Cashflow
Cash is always king ...
POSTED BY JONATHAN VOWLES ON 15/10/2019 @ 8:00AM
Managing cash flow is critical to the success of any business. Get it right and everyone is happy. Get it wrong and your business can go bust very quickly ...
If you want to improve your business cashflow, then follow my 10 top tips!
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Remember that cash flow problems can beset even profitable companies, particularly those experiencing rapid growth. So, what can you do? Well here are my 10 top tips:
Ok, firstly a wealth warning: if you simply cut something out then this can create problems, think any change through first. However, cost saving has to be your first step. Importantly, cost-cutting will have a more immediate impact on your bottom line than revenue-raising efforts.
Can you put a stop to wage rises or overtime? Not replace an employee who leaves? Switch your utility supplier? Ask suppliers for better rates?
Carry out credit checks
If you have customers that don't pay at or before the point of sale then carry out credit checks before taking them on. A bad debt is very expensive but also so are slow payers. Companies that regularly make late payments or default should be red-flagged.
Offer early payment discounts
If you normally give your customer credit terms, then encouraging them to pay sooner than normal by offering an early payment discount. However, an early payment discount might mean you make less profit so consider only using when the business is in urgent need of cash.
If you have an overdraft, compare the cost of the overdraft to your early payment discount? Will your suppliers give you an early payment discount and reduce their total cost?
Reduce your payment terms
A big part of improving cash flow is getting paid quicker. Start by reducing your payment terms from 60 or 90 days down to 30 or to 7 days, or even get paid in advance!
After all, when you let customers pay in arrears, you are pretending to be a bank and giving them an unsecured loan. On the same topic, can your suppliers give you longer to pay?
Lease rather than buy
Consider leasing rather than purchasing the things you use in your business. This is especially useful for depreciating assets like cars, office furniture, machinery, and IT and telecommunications equipment. It is also often used for property.
The cashflow benefit of leasing rather than owning is turning your cost from a one-off capital investment into monthly payments.
Raise your prices
Nearly every business I meet should increase their prices, but are often reluctant for fear they'll lose customers. It is important to understand your costs and profit margins on individual items you sell. Sometimes the answer is to include a price rise in a bundle of products or services.
Issue invoices promptly
If you don't issue invoices promptly, then you are building a delay in your cashflow. If you don't chase late payers promptly, then that is also delaying your cashflow. Don't let bad debts build up!
Clearly, if you don't collect what you're owed, you'll be worse off than if you never made the sale.
Use invoice financing
If your customers typically take a month or two to pay then change the model and use invoice financing and get paid most of your money within a few days instead.
Get external funding
Can you approach banks or lending institutions for a short-term loan or use other funding sources such as self-finance, family and friends, investors and alternative finance like peer-to-peer lending?
Maybe you could re-finance any assets? You can often borrow money against a forklift truck or other expensive machinery.
Hire (me as) a part-time Finance Director
Everyone has heard of getting a non-executive or part-time director. Maybe it is time for you to look at this for your business? Your non-exec should help you look at your business critically to review all incomings and outgoings and help find where improvements and savings can be made.
They should also help you prepare regular cashflow forecasts. This is how you can be alerted to possible cash shortfalls coming up in the future. Which gives you time to do something before you hit a cash problem
Armed with these tips you can review your business yourself, but if you really want to put an end to your cashflow problems, then we can help you.
"Would you like to know more?"
If you'd like to improve your business cashflow, do give me a call on 01234 752 566 or click here to ping me an email and let's see how I can help you.
Until next time ...
More about Jonathan Vowles ...
I've been an accountant in and for business since 1987 and have a wide experience of consultancy, audit, accounts, taxation and wealth planning work from individuals and small businesses to multinational corporations and charities.
My eclectic interests in growing and developing business span a number of areas, which can be summarised as strategic business advice and tax saving advice.
I have worked with the Chamber of Commerce to deliver courses for people about starting up in business and have lectured about tax for a major accountancy practice and for Milton Keynes College.
I relax by reading fiction and by getting away from the office in a campervan.
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