Cashflow management for your business is incredibly important. Even businesses that are performing well can run into issues if they don’t have the right cash at the time.
Keeping on top of your cashflow, and monitoring your expenses and income means you’ll be less likely to run into financial difficulty should your business go through a quiet period or face unexpected costs.
Your cashflow will be an important factor when it comes to selling your business. If you’re planning on selling, you should aim to make sure your cashflow is as healthy as possible, as it will indicate whether your business is viable and worth the asking price.
There are many ways that you can manage your cashflow; here are four of the most useful strategies to follow.
Keep track of your transactions
Keeping a close eye on your business’s spending and income is the first step in maintaining a healthy cashflow.
Budgeting need not be an overly-complex exercise – it can be as straightforward as a daily review of your bank balance and mentally adjusting for known incomes and outgoings. But equally, more complex scenarios may require spreadsheets or specific forecasting software.
For example, if you can identify unnecessary purchases, you can cut them off sooner rather than later. Otherwise, you could switch to a cheaper alternative.
One instance of this is the purchasing of business equipment. If you realise it’s a drain on your cashflow, you may consider leasing, hire purchase or taking out a loan rather than buying them outright. It might be more expensive to do this over the long run, but it spreads out the cost, helping you maintain a positive cashflow.
If you know that you’ll need money in the near future, it could be beneficial to borrow this before you need it. Loans can be easier to arrange when your finances are in good stead.
If you were to wait until the last minute to apply for a loan, you could find yourself short of funds, your cashflow will start to decline, and financial institutions may not be so willing to lend under these circumstances.
Funding a business’s activities can take a number of forms, and probably will rely on a combination of these:
- bank loan
- bank overdraft
- invoice funding
- asset finance (hire purchase / leasing).
Borrowing money will involve fees, interest and usually some form of security. If your business lacks the assets to secure funding itself, you may have to provide personal guarantees to the lender.
These factors require consideration, but applying for a loan ahead of time will demonstrate to lenders that you’re in good control of managing your cashflow.
Reassess your procedures
Altering the ways you work can be invaluable to your business’s success. It can be easy to run things as you’re used to, but assessing the effectiveness of your operations can prove to be beneficial to your cashflow.
One example is outsourcing and employing agency workers. This can be particularly helpful for seasonal businesses, allowing you to utilise staff only when you require their labour, and saving on employment costs.
Similar to tracking costs, stock control can play a large part in a positive cashflow. Holding excessive amounts of stock ties up available funds, so establishing correct stock levels is key.
By implementing an effective stock control system, you can keep track of your popular lines. This will allow you to prioritise and cut back where you see fit.
Having the foresight to get in front of your problems is something every business owner should have. Turnover is vanity, profit is sanity, but cash is king.
Whitley Stimpson is here to provide support and advice to help you manage your cashflow before you run into any issues.
Contact our team today to discuss your business’s finances.