Keep your cash flowing – 5 tips for small business owners
Posted on 26th April 2023
To understand how well your business is doing it’s important to have a clear picture of your cashflow. It’s a very effective way to improve your business performance. On the other hand, poor cashflow management is one of the top reasons small businesses fail.
Your bookkeeper can help you with this.
Here are five of our top tips for cashflow management.
1. Know where your money comes from
Understanding your income is really important, especially in the early days. Look at the average revenue each customer provides and their lifetime value to your business. Compare this with how much it costs to find a new customer. This will help you attract and keep the type of customer who will help your business to grow.
2. Take everything into account
You will make better decisions for your business when you have a clear picture of your future expenses. You also need to make sure that you have enough in hand for your personal tax, Corporation Tax and VAT liabilities.
It’s important not to panic if your cashflow looks poor; there could be a very good reason. You might have made purchases to help your business expand or invested in training, for example.
3. 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 can predict opportunities and challenges more easily.
4. Keep up to date
Late payments are a real problem for smaller businesses. It’s important to make sure you know when payments are due and when they are received. Then 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.
With accounting software in the cloud like Xero you can see overdue payments and bills at a glance. To save time, you can set up automated payment reminders and rules to allocate regular bills the right account codes.
5. Have a cashflow management plan
This might sound daunting, but a plan to manage your cashflow is really useful. If it’s done well, the actions you include will help 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
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 regular customers
announcing in advance when you’ll 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.
We can create regular, easy-to-use reports to help you understand the cashflow in your business. Please get in touch if you would like to know more.
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