Cashflow is every business’s lifeblood, so you must make sure you’re managing yours to the best of your ability.
Referring to the movement of money in an organisation, your cashflow indicates what’s coming in and coming out at any given moment.
Of course, you want more money coming in than going out at any given moment. This is called a ‘positive’ cashflow.
But do you know exactly how to manage your cashflow or how to predict how much money you’ll have in the future?
If not, read on to find out everything you need to know.
The importance of cashflow
Staying in control of your cashflow is extremely important for any business. If you don’t, you might find yourself without the funds you need to achieve your goals.
For instance, with a positive cashflow, you’ll also be able to continue buying whatever stock, produce or equipment you need to do business, while keeping the lights on and your staff paid.
At the same time, you’ll be able to keep up with your debt repayments without having to compromise your business’s day-to-day activity. We cannot overstate the peace of mind this will bring.
How to improve your cashflow
There are many simple strategies you can use to improve your cashflow, some of which you can put in place today.
First, if you get paid by invoices (e.g. if you are a B2B business) , you can improve your cashflow by improving your invoicing system. In particular, you should be trying to make your customers pay you on time.
Do that by being prompt yourself and taking the time to send out every invoice as they come up. Your timely work might just influence your customers’ own behaviour.
We would recommend you apply penalties for late payments and discounts for early ones, and send reminders via email or text message.
Next, think of ways you can cut on unnecessary expenses. Start with listing all your expenses and be brutally honest about what you need and don’t need.
Where you can’t go without something, look for cheaper alternatives. If you’re spending a lot on printing costs, for instance, making your office paper-free could be a way to make a simple cutback.
Then review your pricing strategy. The obvious answer is to up your prices and in some cases, you would be forgiven for doing so.
But there are other strategies you could try. For instance, could you free up some cash tied down in stock by lowering the price or incentivising purchases with deals?
This cashflow management strategy is the most important one to get right, so seek advice before you radically alter all your business’s prices.
An essential part of cashflow management that often gets overlooked is the creation of cashflow forecasts, with which you can predict how much money will be available at any point in the future.
In essence, they allow this by using data from past performance to predict the possible future.
The best forecasts will be flexible and enable you to run different scenarios based on different assumptions, such as lower than anticipated sales or higher input costs.
When you put your forecast together, just remember that you can’t assume your sales will be consistent all year round.
In retail, for instance, you’ll find that your sales will fluctuate depending on the time of year – you’ll need to make sure you’re meticulously accurate if you want a helpful forecast, too.
Team SAS can help you with your financial modelling, including your cashflow forecasts. We also have a helpful template with how-to video found on this link to help you get to grips with your cashflow management. Just reach out to the team today.