As the name suggests, cashflow refers to the movement of money in and out of a business. The goal is to ensure that what is coming in, exceeds what’s going out, or at the very least equals it. Incomings include sales, credit and investment, whereas outgoings refer to the overall cost of running the company. Managing cash flow is a very important aspect of business, so much so that up to 80% of companies fail, due to poor cashflow management. Businesses, no matter how large or small, need to invest time and effort in to cash flow management, to ensure they don’t end up as another statistic.
We have established that cashflow management is vital but why? Put simply, businesses need money in order to function on a day-to-day basis. You may be forgiven for assuming that cashflow problems only affect struggling companies but that’s just not the case. For example, a business may have money tied up in assets, property, stocks or product and are therefore unable to access cash. A business may be successful and profitable but struggle with cashflow due to credit repayments or expensive bills. Some companies face a seasonal challenge, in which most of their sales are made during one part of the year, again leading to problems with cashflow.
Fortunately, good cashflow management can ensure that you’re always one step ahead of potential danger.
As with nearly every aspect of running a business, thorough record keeping is essential to cashflow management. The only way to ensure you’re keeping on top of what’s coming into the business and what’s going out, is to record this information. This is particularly important when we consider changes within the payment structure- for example a change in the amount paid to utilities or late payments from customers. It’s easy for a last-minute alteration to have a substantial effect on cashflow, which in turn can then affect the health of the business.
The current financial climate is rough and missed or late payments are only going to become more commonplace. Whilst this may be understandable, the later a payment is, the less cash you have to work with. Therefore, it’s important to keep in regular contact with those with outstanding debt, in order to prompt a payment. This can come in the form of regular emails, letters or direct phone calls. Unfortunately, in some cases when a payment is unforthcoming, you may have to move towards legal action in order to recoup what is owed.
One way in which to ensure good cashflow is to improve that balance between incomings and outgoings. Regular reviews of the business and it’s spending habits can help in cutting costs and therefore freeing up cash. One such review may highlight a rising energy bill or broadband package, leading to a change in provider. It may also be possible to reduce costs by moving to a different supplier or negotiating a better rate. Reviews allow business owners to take a step back and see the bigger picture, allowing for beneficial changes that can free up cash.
Even with good cashflow management, you may find yourself struggling with bills or necessary payments. It can be easy to ignore the problem but that often makes things much worse in the long run. If you’re worried about bills, talk to your providers and see if they can provide a more manageable payment plan. You can also talk to your bank, as they may be able to reduce or consolidate your monthly payments. Help is available but third parties are going to be more amenable to businesses that act fast and plan ahead, as opposed to those who let a crisis grow.
Cashflow management is an essential aspect of any successful business but there is help available. The experts at Salhan Fund Flow have experience in providing expert cashflow analysis and management, for business both large and small. Don’t hesitate to get in touch with Salhan Fund Flow for more information.