Posted by on Apr 19, 2017 in Career Insights | 0 questions

Managing a profitable business is one of the hardest things anyone can undertake, and one of the hardest parts of it is keeping a firm handle on the business’s finances. The lag between the time you have to pay your employees and suppliers, and the point where you receive payments from your customers, is just one of the major problems many small business owners will face.

The only solution is putting enough resources into proper cash flow management. This is a big subject with a lot of different facets you need to understand. Here are some of the most important factors that go into cash flow management.

Measuring Cash Flow 

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Start drafting cash flow projections for the next year, the next quarter, and, if you’re really concerned about your immediate financial needs, next few days. A solid cash flow projection can help you become aware of troubles well before they actually strike. As you go about this, bear in mind that cash flow projections aren’t premonitions from a crystal ball. They’re educated guesses, taking in a number of different things, including your customers’ payment histories, your own method for predicting future expenditure, and how long your suppliers will wait for a payment.

Be sure to exercise caution when you’re assuming receivables will come in at the rate they have in the past. Similarly, don’t make too many assumptions that payables will continue the way they have in the past, and make sure you’re accounting for the seasonal fluctuations in your industry. Good cash flow projections are also dependent on knowing all the details of upcoming cash outlays, knowing how each penny will be spent, and how these purchases will affect your cash flow in the future.

Outsourced marketing campaigns, specialised equipment for functions like irrigation water using calculator, and other outlays, can all represent an opportunity for capital growth in the future of a business. Make sure you have a thoroughly researched projection tied to every single outlay, including rent, inventory, salaries and wages, taxes, and so on.

Improving your Receivables 

If you got paid for all of your sales the second they were finalized, you’d never experience even a whiff of a cash flow issue. Unfortunately, this can’t happen. However, you can still improve your cash flow massively by taking a proactive approach to improving your receivables. The fundamental idea of this is improving the speed at which you turn your supplies and materials into products, your stock into receivables, and your receivables into currency.

There are a few tried and tested techniques to doing this. You could offer discounts to customers who pay their bills before their due date, ask your customers to make deposit payments at the time their orders are taken, or start running credit checks for all new customers. You should also track your customer accounts in order to identify typically slow-paying customers, and deal with these accounts appropriately. Most importantly, make sure you’re sending out invoices promptly, and chasing them up the second payments are late.

Managing Accounts Payable

Rapid sales growth within a business can conceal a range of common issues, sometimes all too well. It can be easy to be lulled into a false sense of security when your business is growing at a fast rate, thinking that expanding sales means that your cash flow is more or less safe. Pay equal attention to both your expenses and your revenue, and any time you start to see your expenses going up faster than your sales, scrutinise the larger costs carefully, and figure out places where you can mitigate them or cut them out completely.

You can make this easier for yourself by leveraging creditor payment terms. If you’ve got 30 days to make a payment, wait the whole 30 days. You can use standing orders through your online banking to transfer payments on the last day that they’re due, staying in your suppliers’ good books while still being able to use your cash for as long as possible. It’s good to keep in regular contact with your suppliers, even if you have recurring orders and there’s no reason to update them on anything.

Give them some clue about your financial situation. If you ever have to delay a payment past the due date, you’ll need to have their complete understanding and trust. You should also consider any offers you get for discounts in exchange for early payments. Taking these isn’t always a smart move, but it can often present a chance to reduce your business’s overall costs. On the subject of this, don’t always go for the cheapest rates when you’re sourcing new suppliers. In many cases, flexible payment terms can do much more for your business than bargain prices on individual items.

Prepare for Shortfalls

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Sooner or later, your business can come to a situation where it lacks the capital needed to pay for its bills. Don’t worry! This is completely normal, especially among B2B entrepreneurs who are just getting started with their long-term business plan. By the same token, there are a range of perfectly normal business practices that can help you mitigate the impact of a shortfall. The key here is becoming aware of the issue as accurately and as early as possible.

Most banks are very wary of prospective borrowers that absolutely need to have the money today. They’re much more ready to lend you cash that you’ll need in the future, ideally a few months down the line. If you come up short because you had a bad plan in place, any creditor is going to be hesitant to help you out. You should assume from the beginning that you’re going to run into a shortfall at one time or another. This, in turn, should be followed up with applying for a line of credit with your bank. This can allow you to borrow money up to a specific cap at any time you need it. It’s always easier for a business owner to borrow money when they don’t need it, so arrange your line of credit as soon as possible!