You want to sell your product and service and make huge profits but a balancing act has to be made, especially at this crucial time. Cash flow is the hard reality of business life and if you haven’t got enough cash in order to pay the bills, no matter how many sales you have confirmed but not paid, your business will suffer.

Having a clear map of your finances at any given time must be a priority as the owner of the business. Even if you have someone looking after your accounts, you must be in a position to appreciate how much money you owe out, how much is owed to you, and how much cash you currently have in your account.

Accurately Predicting the Future

And don’t think that it’s just about maintaining a level of cash flow through having more income than outgoings. It isn’t always that simple. A strong financial plan will take into account all of your overheads, your salaries, bills’ etc, and ensure that on specific dates of outgoings there is enough cash in the bank to make payments.

For example:

Understanding your market and the (realistic) potential sales you will make over the coming months, and years, will help you know when you will need extra financing. This could be in the form of a loan or overdraft extension, or the cutting of necessary costs during those periods. This all goes back to having a clear mind and a strong structure in place when planning your business. Accurate estimations are required to stay on top of your cash flow.

Curb Your Impulses – Don’t Overspend

This especially matters at the very beginning of your business. Making sure that you have enough cash flow is important to pay the bills; one way to ensure this happens is to keep a tight control over your spending. This can mean being the sole person responsible for purchases (if it is practical given the type of business you are running), or keeping purchasing solely to business reasons.

Break down your spending into weekly figures. If you do need to tighten up certain areas due to potential cash flow problems, look at the areas where you could realistically cut your spending without it effecting the service offered. Look for deals with certain suppliers, trade where appropriate and search for the best value supplies without diminishing the quality too far.

There is a dangerous side to this approach however, as too much cost cutting can damage your service, your product and staff morale.  If you have found yourself in a position where cost cutting is a necessity to save your company, the unpleasant decisions have to be made by the owner of the company, and you sometimes have to make decisions that you are not happy with or comfortable with, but have to be made for the greater good.

Chase Your Payments without Scaring Away

Offering customer’s credit is an attractive incentive for many to come and do business with you; just as you would look upon it favourably with suppliers, especially at the seedling stage of a business when you have the chicken and egg situation of requiring supplies in order to make the product that will then pay for those initial supplies once sold to the customer.

Put in place effective credit control from the very beginning of your venture. Know how you will bill, and what your credit terms will be, if you have any. Place tight checks on customers who wish to gain credit from you, and provide annual checks to keep up to date with how likely someone is to pay, and to pay on time.

Also, stay strict on invoicing terms as it is important to know that once you’ve issued an invoice it will be paid within the time limit. There are a couple of ways in which you can ensure this is the case; make it an attractive option for people to pay early, potentially by offering a small discount for those who pay within a certain time, or through future incentives; the other option is to make it clear that there will be an interest payment due on any late payments.

Cash flow problems can be resolved by seeking debt factoring – selling your invoices to third parties, or through invoice discounting – drawing against unpaid invoices for a percentage of the eventual payment.

Stay Focused and Clear on Cash Flow Situation

Keeping on top of your cash flow is an ever important fact of business life. A sign that a business is struggling is that they have difficulty paying their bills and their overdraft seems to be increasing at a regular rate and looking less likely to be paid back anytime soon.

If you are the owner of a start-up business you can find advice on these pages relating to everything you need to know to put in place a solid foundation for your future. There are a number of ways in which you can keep outgoing costs to a minimum at this crucial stage of your business development; from virtual offices to telephone answering services, costing you less than physical premises and allowing you to focus on delivering a great product or service. You can also find financial health checks for small businesses, keeping you clearly in the picture on a regular basis.

Our Free Download section offers free templates including:
– Business Plan Template
– Cashflow Forecast
– Personal Survival Budget
– Profit & Loss Forecast
– Sourcing Finance
– Start-Up Costs

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