How To Prevent Cashflow Problems

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Prevent Cashflow Problems

How To Prevent Cashflow Problems

If you want your business to survive and thrive, preventing cashflow problems is vital. According to statistics, the vast majority of new businesses that fail do so because they haven’t managed their cashflow properly.

We hope that the following tips will prevent you from falling into the same trap.

1. Ensure that customers pay you on time

It is imperative that you encourage quick payment if you are relying on receiving money from your customers to pay your suppliers. You will still have to pay them even if you have not been paid yourself.

You can stick and use a carrot approach to make sure that your customers pay you promptly. Try offering early payment incentives and quoting the Late Payment of Commercial Debts (Interest) Act of 1998 on your invoices. The latter allows you to charge interest on overdue payment.

2. Budget properly

Good budget management is a key way to prevent cashflow problems. Do avoid the temptation of spending money that you had not planned to spend when setting your yearly budgets. Question the likely return on investment (ROI) of any promotional activity before allocating funds to it.

3. Careful account management

Do you know when your invoices were sent out? Do you know who you are still waiting for payment from? Have you chased up late payments?
Managing your accounts carefully is an important aspect of preventing cashflow problems. When invoices were sent and paid so that you can see easily if any payments are outstanding, keep an invoice books detailing exactly.

4. Run credit checks on companies before doing business with them

Try offering early payment incentives and quoting the Late Payment of Commercial Debts (Interest) Act of 1998 on your invoices. The latter allows you to charge interest on overdue payment.

Vetting companies by performing credit checks or other tests is a very good way to find out if they are likely to pose a cashflow threat to you if you do business with them. Failure to research a potential client’s payment history means that you run the risk of not getting paid.

Good budget management is a key way to prevent cashflow problems. Do you know who you are still waiting for payment from? Have you chased up late payments?


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Cash Flow Management

Cash Flow Management Can Help Your Business

For a business, no matter if they are a startup business or an established business cash acts as their lifeline; it is the one area that allows a business to survive. The amount of cash that a business has at its disposal often shows the health of a business. A business, especially a start-up business would be able to survive for a while without sales or profit but without cash it will fail.

In order to give your business the best possible chance you need to have sufficient control over the cash flow that is going into and out of your business. You obviously want to have more cash going into your business than out of your business but to ensure that this is the case you need to have a good grasp of the cashflow that your business has.

A crucial element to remember is that there is a difference between cash and profit. In order for a business to make a profit it needs to produce and deliver services or goods to customers before you actually make a profit so if you don’t have the cash to do this then you technically won’t have a business left to run. If you want more evidence of these just look at the facts; the reason that most businesses fail is poor cash management that has led to a business not being able to afford to carry on and poor cash flow is the reason that the majority of start-up businesses don’t make it past their first year.

Some examples of the cashflow that will be coming into your business include the following:

1. The payment for goods/services from your customers
2. Any bank loans that you may have taken out
3. The interest that you collect on investments and savings
4. An increased bank overdraft or loan

Some examples of the cash that will be coming out of your business include the following:

1. The purchase of any stock, raw materials or tools that your business needs
2. Your staff wages, property rent and all of your daily operating expenses
3. Any repayments of loans that your business may have
4. Any dividend payments
5. Reduced overdraft facilities

For a business, whether they are a startup business or an established business cash acts as their lifeline; it is the one aspect that allows a business to survive. In order to give your business the best possible chance you need to have sufficient control over the cash flow that is going into and out of your business. You obviously want to have more cash going into your business than out of your business but to ensure that this is the case you need to have a good grasp of the cashflow that your business has. In order for a business to make a profit it needs to produce and deliver services or goods to customers before you actually make a profit so if you don’t have the cash to do this then you technically won’t have a business left to run. If you want more evidence of these just look at the facts; the reason that most businesses fail is poor cash management that has led to a business not being able to afford to carry on and poor cash flow is the reason that the majority of start-up businesses don’t make it past their first year.

In order to help you with your cashflow management it is a good idea to keep an up-to-date record of all of your cash so that you can see exactly what is coming in and going out of your business. By doing this you can find ways of potentially improving the cashflow of your business.

If you want to have a good cashflow within your business you need to ensure that your pattern of income and your business spending habits allows you to have cash available as well as being able to pay the bills on time. Cashflow depends on the timing and amounts of money flowing into and out of the business each week and month.


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Increase Your Cashflow

Top Notch Loan Alternatives

We all know the importance of maintaining a positive cashflow from month to month if we want to avoid a liquidity crisis, and all the misery that entails.

There is a lot more to cashflow management than just avoiding a crisis. Actively striving to increase your cashflow can –

  • Make it easier to plan and fund future growth and expansion
  • Reduce the amount of fixed capital you need at any one time
  • Give you the flexibility to move quickly and effectively in response to market changes

The key to successful cashflow management is to optimise the amount of cash available to you at any one time. This means increasing your cashflow as much as you can, without jeopardising other strategies. This means that you have to find a balance to suit you.

Credit

It is also important that you don’t impose too strict a regime, otherwise you could drive away customers, and they won’t want to refer you! You need to find the right balance to suit you and your situation.

The first, and most important, step is to establish a system for tracking and controlling credit. The faster you receive a payment from your customers, the more cash you will have at your disposal; therefore, it is important to bill early, and chase up customers who have failed to pay.

Payments

At the same time, you should also take advantage of any incentives your creditor offers you. If your cashflow will allow it, this is a useful option to have.

Prices

While it is important to keep your prices competitive, you also need to make sure you are increasing your prices to cover any increase in costs; or else your cashflow will suffer. Remember, most customers tend to expect an annual rise in prices, provided it is within an acceptable range.

Call the experts

The key to successful cashflow management is to optimise the amount of cash available to you at any one time. This means increasing your cashflow as much as you can, without jeopardising other strategies. At the same time, you should also take advantage of any incentives your creditor offers you. If your cashflow will allow it, this is a useful option to have.

This is an area in which we have a great wealth of experience. If you are struggling, or would just like a helping hand, please feel free to contact us to discover and arrange a meeting how much we can help improve your cashflow.