Cash flow management

Controlling cash flow

One of the main reasons for business failure is running out of cash.

A business may be trading profitably, but it can still fail if cash is not available. No business can survive long without enough cash to meet its immediate needs.

Cash flows into a business mostly through sales and out through costs such as raw materials, labour, transport and power.

More coming in than going out means you have a positive cashflow and you can pay your bills on time.

In the short term, more going out than coming in means a business struggles to pay its bills and might need to borrow money to cover the shortfall.

In the longer term, more money going out than coming in means your business can’t continue.

You need good financial management and foresight to plan for what might happen.

Here are some of the things that can help you to control your cashflow:

• Monitor stock levels and don’t tie up cash in unnecessary stock
• Chase outstanding debts
• Incentivise early payment of your invoices
• Enforce late payment penalties
• Negotiate payment terms with suppliers, paying later or in instalments
• Reduce overheads
• Increase sales prices/lower cost prices (shop around, negotiate discounts)
• Make better use of assets – hire out excess warehousing space, or underused transport
• Too much cash? Put it to work in a deposit or investment account
• Too little? How much do you need to borrow, for how long and at what cost to cover shortfall? Settling debt early to reduce finance charges, consolidating debt?
• Produce 13-week cashflow forecasts
• Run what if scenarios
• Consider sales trends
• Consider digital record keeping/Online accounting – invoicing/payment reminders

Successful business owners surround themselves with people who can fill in their blind spots. If cashflow management and financial control are yours, talk to us. We can help you get a firm grip on your cash flow. Call Kay Brookes on 01332 365855 or email kayb@batesweston.co.uk

Sometimes it helps to see a practical example of the help we can give. Here’s a recent example.