08 Oct CASH FLOW MANAGEMENT FOR SMALL BUSINESSES
What does cash flow management mean to a small business owner? Well, in laymen terms – Cash flow management is the process of tracking how much money is coming into and going out of your business, however, there is more to it than this, Cash flow is actually one of the most critical components of success for a small or medium-sized business, simply put – without cash, profits are meaningless. You may have thousands of Rands profit… But if the cash is sitting in your Debtors and they aren’t paying you… how do you survive?
Managing your cash flow properly takes discipline, but it will help you predict how much money will be available to your business in the future, as well as helping you identify how much money your business will need to cover debts and expenses, for example paying your staff or suppliers, car loans and cell phone contracts, the list goes on and on (it feels like it’s never-ending right!?)
If you can keep track of this flow and analyse any changes to it this will stand you in good stead by helping you spot trends and predict the future. It will allow you to confront any problems with your cash flow immediately, before any real damage is done.
Tips on how to be running in the Black NOT Red!
- CUT COSTS
It may sound obvious, but so many small businesses or companies fail to look into this, have a dig around, see what you can find, try and focus on recurring monthly, quarterly or annual expenses. Are you able to cut back on utilities, rent or payroll? Ask yourself, ”Am I spending money on subscriptions, services even insurance I am not using or no longer need anymore?”
- STAY ON TOP OF INVOICING
You need to know who has paid your invoices and who has not.
If you have even a small number of clients, try setting up a system so you can easily see who has paid their invoices. Online accounting software can help with this, so it is a good idea to find one that suits you. Go straight to the source and find out the specific person, job title and address to send your invoices to so they don’t get lost in translation from department to department. Designing your invoices are KEY, they need to be straightforward, easy to read, with important areas like the due date, amount due, where to send payment and payment methods, highlighted. Follow up regularly with clients for payment – if you don’t ask, you normally don’t get!
- SPEED UP PAYMENTS TO YOU
Consider offering your customers incentives, such as a percentage off the total, for early payments. NOTE to self, make sure you do the math beforehand to ensure the trade-off is worth less money in the long run. If possible, in your line of work try and have an up-front billing policy, receiving immediate payment should strengthen your cash flow considerably. Get your recurring clients to sign a debit order with you, this will make a huge difference to your recovery rate!
- ADDRESS LATE PAYMENTS PROMPTLY
No matter the system you have implemented to keep track of timely payments, some customers are nonetheless going to fail to pay your company on time. In order to minimise the number of late payments, you should consider establishing a penalty system, perhaps including a fee for those customers who pay late. Your company should have a system in place that helps you to maintain contact with customers, and ultimately collect payment for services rendered. If a client is late with a payment, you should contact them immediately after they fail to pay on time, don’t leave it, it might be uncomfortable bringing it up, but don’t let the action of another’s irresponsible cash flow management, put YOU in a money crunch., an automated system that sends automatic emails or texts as soon as a bill is overdue can help you with this.
But remember… you can only levy penalties or interest if your clients have agreed, in writing, to this. So it’s a good idea to build it into your terms and conditions of sale, and ensure all clients sign this BEFORE you work with them.
- TAKE ADVANTAGE OF REWARDS SYSTEMS
When choosing a business banking institution, consider their rewards programmes first. Look for banks with rewards that will suit your business, like points toward travel or business purchases. Utilise these rewards efficiently and you will be amazed at how much you can save.
- SEPARATE BUSINESS AND PERSONAL FINANCES
Mixing business and personal finances will leave you guessing about your business performance, so keep them separate. This way you will know how much profit your business is actually generating. You should pay yourself a set salary (efficiently tax-structured, of course). Remember that growth is funded from profits, so if you draw it all out for personal use, your business growth will be limited.
Know your numbers, Grow your business. You May be a small business, but you have a LARGE footprint!