Keep your cash flowing - five tips for small business owners
Posted on 14th August 2019 at 09:12
It’s important to have a clear picture of your cashflow to understand how well you are doing and how you can improve your business performance.
Your bookkeeper can help you with this.
Here are five of our top tips.
Know where your money comes from
Understanding your income and expenses is really important, especially in the early days. Look at the average revenue each customer provides and the lifetime value of your customers. Compare this with how much it costs to find a new customer. This will help you prioritise finding and keeping the types of customers who will help your business to grow.
Take everything into account
You could make the wrong decisions for your business if you don’t keep track of future expenses. You also need to make sure that you have enough in hand for your tax and VAT liabilities. However, it’s also important not to panic if your cashflow looks poor. There could be a very good reason; you might have chosen to make some purchases that will help your business expand or to invest in some training for example.
Take a long-term view
Managing your cashflow is part of your long-term business strategy. Recognising patterns and trends will help you to plan for the future with confidence. As your business becomes more established you will be able to predict opportunities and challenges more easily.
Keep up to date
Late payment can be a real problem for smaller businesses so it’s important to make sure you know when payments are due and when they are received so that you can follow-up quickly if they are late.
Paying your suppliers on time is important too. It’s good for your business reputation and might mean that you can negotiate better terms in the future.
Have a cashflow management plan
This might sound daunting, but it can be really helpful. Your plan will be unique to your business. If it’s done well, it will include the actions you will take to make sure your cashflow remains positive.
Your plan might include:
• negotiating better credit terms with your longer-standing suppliers
• asking your customers to pay a deposit or to pay in advance for goods and materials
• reducing payment terms for new clients from 30 days to 15 days
• extending payment terms for your reliable customers so that they continue to do business with you
• offering a discount for immediate payments
• offering additional services to existing customers
• asking for recommendations and referrals
• announcing you will be increasing your prices to encourage people to place their orders early
• making sure you only pay for what you need – cancelling old subscriptions and reducing stock levels for example.
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