Member Article

How to keep cash flowing through your business

The most common small business cash flow problems and how to fix them.

We all know that cash is the lifeblood of every business and letting it run dry would cause serious problems. That’s why ensuring your firm doesn’t suffer from cash flow problems should be your number one priority.

If there isn’t enough cash running through your business to pay your staff and overheads, it will have a negative effect on your operation.

Ensuring that your firm doesn’t suffer from cash flow problems should be your number one priority.

The best way to keep cash flowing is to head off any potential problems before they threaten your business. Here are five steps you can take to keep your firm on the road to success.

1. Look to the future

Drawing up a cash flow forecast can help you see where you are vulnerable.

It’s important to learn how to recognise the warning signs that your forecast might contain.

It’s time to act if….

• You have a payroll run or several bills due to be settled before you get paid for a large order
• Your forecast shows that if one major customer pays late, you won’t be able to pay your bills on time
• Your suppliers’ credit terms are stricter than your own - so you’re paying out cash faster than it’s coming in
• You have little or no spare cash to fall back on

2. Get on top of your record-keeping

Keep the cash flowing

Issue your invoices as soon as you can. The sooner you do, the earlier you’ll get paid Consider offering discounts for early payment…and interest charges on overdue invoices Make sure you bank cash and cheque payments as soon as they come in and if you haven’t already done so, consider letting customers pay by BACS

If you can’t spare enough time, maybe it’s time to:

• Take on an extra member of staff, possibly part-time, to handle your records and invoices
• Outsource your bookkeeping to a specialist
• Use a software package that makes it easier to keep track of payments and can alert you to chase outstanding invoices

3. Know your customers

Carry out credit checks in advance

Keep track of who pays late and base future trading decisions on it:

Prompt payers

These are the customers every business dreams of, settling their invoices on time or even sooner. Is there any way of increasing the amount of revenue you get from them?

Laggards

If a customer pays late on a regular basis, ask what you can do about it. If they are a major source of business, your hands might be tied. But it’s worth thinking about how you could survive without them and looking for other sources of revenue or find ways to encourage them to pay on time, such as early payment discounts.

A firm in trouble

If a former “prompt payer” has started falling behind schedule, it could be a sign that they themselves are struggling with cash flow. Conser scaling back the business you do with them.

4. Manage your growth

Growing too fast is one way to run out of cash.

But a carefully controlled lending service such as invoice finance can make a big difference.

Your outstanding invoices are an asset, and they can be used to borrow money

An invoice finance firm can give you cash upfront against your invoices which you either pay back once they are settled, or which the firm chases up on your behalf

If your cash flow forecast indicates there could be trouble ahead, now might be the time to look for outside assistance. Don’t wait until it’s too late.

5. Get back to doing what you do best

It can be hard to stay focused on running your business when you have financial problems in the background, but it’s important not to neglect what you do best when times are hard.

Keep the wheels in your business turning

• Continue to develop new products to add further value to your service offering
• Spend time on building a lead generation strategy as attracting a pipeline of new customers will ensure your business’stability
• Explore new markets for opportunities to plug any gaps in your offering, or quick wins to expand your outreach

Focusing on these steps will keep your cash flow and business running smoothly, and will help to ensure that the wheels of your business keep on turning.

Find out how the best business lenders are offering alternative ways to fund business growth, get this guide: A new landscape. Business lending after the financial crisis. Copy and paste this link into your browser: http://bit.ly/businesslendereguide

This was posted in Bdaily's Members' News section by David Thomson .