#13 Cash Flow
Cashflow is the life blood of your business, remember the old saying ‘money makes the world go round’ well this certainly applies to the success of any business and is crucial in the early stages.
It is a common view that poor cash flow management in your first year will lead to failure in your second year, so we cannot underline the importance enough of getting this right first time!
There are 3 main areas to be considered and the successful management of all three, will combine for a healthy cash flow; –
- Accounts Payable – the money that you owe your suppliers
- Accounts Receivable – the money that your customers owe you
When your business plan was drawn up, you would have projected your break even point, make sure that you periodically assess where you stand compared to your projections and manage your cash flow accordingly.
Make sure that your payment terms with all your suppliers are set at the maximum possible time frame – generally 30 days. Your aim is to keep money within your business for as long as possible.
Minimise bad debts, ensure that you have a debt recovery strategy in place, and that you enforce it. Every debt that you fail to recover, is money that you have to find from elsewhere to cover your expenses.
Early payment incentives can work for you and your clients – find out if your suppliers offer an early payment discount and consider offering rewards to your clients when they pay in advance.
Offer clients whom you work with all year round the option to pay in advance by standing order, this is particularly helpful if you see seasonal peaks and troughs.
Use technology to your advantage – accounting software will work in real time information (RTI), giving you live information and financial positions. Having knowledge at your fingertips will give you a firm grip on the figures!
If the numbers scare you, use Avanti to help – that’s what we are for! Let us worry about the numbers and advise you accordingly – allowing you to get on and do what you do best, running your business. The most important factor is not to bury your head in the sand, manage it correctly from day one and it does not need to be scary.