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3 Steps to better manage your cash flow

Posted on: December 1st, 2012 by Walid Abou-Halloun
Categories: Business. Tags: Budget and Cashflow.

3 Steps to better manage your cash flow

Cash flow is king and is the lifeblood of your business. In small businesses cash flow can be unpredictable, below are 3 ways to help you better manage your cash flow.

1. Measure your cash flow

The tighter your cash flow gets the more aware of your income and expenses you need to be. Having a monthly forecast of cash flow can better prepare you for decisions about which bills to pay and what you can or can’t afford each month. It will also allow you to predict when you will be short so that you know when you may need to secure additional funds.

Include regular expenses such as wages, rent and routine marketing costs. Try to include as many other expenses as possible such as car servicing, tax, seasonal shortfalls such as the Christmas break. Here is a cash flow budget we created for you to get you started.

Are you expenses in line with your income? It is easy in small business to spend money on marketing when there is cash in the bank. Ensure you have enough tucked away to continue to promote your business and pay your bills in quieter times.

As difficult as it is to create a forecast, it is one of the most important tools in helping you to manage your cash flow. Without a forecast you could be putting your business at risk.

2. Improve your terms

Income in your bank account is better than an outstanding invoice. It’s important to collect income as soon as you can. Do you offer a discount for early payment or do you accept pre-payment?

Take advantage of creditor payment terms and pay on the last day with electronic funds transfer to hold onto your funds as long as possible. Don’t always focus on the lowest price supplier; sometimes extended payment terms can be more valuable than the lowest price.

3. Surviving shortfalls

Most small businesses find themselves in a position at one time or another when they are short on cash. This comes with the unpredictable nature of running a business.

The key is to be aware of the problem as early as possible to ensure you have as many options as available.

An overdraft form your bank is common source of short term funds. A bank loan is another option but will require some planning, financials and potentially security.

You could speak with your suppliers about extended terms. It is in their best interest to keep your business going and you may find that they can be flexible on terms or happy to charge a little extra for longer payment terms.

In tougher times you could also speak to factoring companies who will factor your income. In other words they provide you with cash based on future income for a fee. This might get you out of trouble in the short run but you don’t want to rely on this as interest can be expensive.

Lastly manage the funds you have carefully including choosing the bills you do pay. Ensure payroll is paid on time as your employees are your biggest asset and you do not want a late payment to be their last.

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