• Lindsay Scott

5 Ways to Improve Your Company’s Cash Flow

Updated: Feb 12, 2019

Cash flow management can be a huge pain point for young and growing companies. You have a great product or service and you may even have a high turnover but for some reason there’s no money in the bank. You may be making money on paper but if your cash flow is poor you’re not managing it effectively. So many great businesses fail because the money simply runs out.

Here are some simple yet effective ways you can manage your cash flow:

Understand your cash position with a cash flow forecast

You need to know how much money you have access to at all times and a cash flow forecast accurately predicts this. There are some excellent and easy to use tools available to help you with this such as It’s important that you keep on top of your bookkeeping though as otherwise your data will be out of date and misleading.

Understand your numbers

Your sales revenue may be high but if your profit margins are low or negative you will soon run out of money. You may think you don’t need to run reports or that you are too small to require planning and forecasting. The problem is, without reporting and reviewing the results you run the risk of making the same mistakes over and over, slowing your path to success. Set targets, run monthly reports and ensure someone who understand numbers is managing them.

Build a buffer

Calculate how much money you need to run your core business. Include fixed and variable costs with a contingency for the unexpected and build your buffer over time. Aim for 6 months’ cash in the bank and you will be in a secure position. The easiest way to do this is when you have a surplus of cash- plan for lean times when times are good.

Create a budget

Monitor your budget and stick to it. Just like in your personal life, if you overspend in one area you need to pay for it in another. Spending time reviewing all your business expenses will also help you see if you are overpaying for anything. Include a regular 3-6 monthly review.

Ensure you have an effective credit control system

Lower your risk with shorter payment terms or upfront part payment from clients. Be careful about who you work with and talk about payment term expectations with clients upfront. If you don’t enjoy chasing late payments, outsource credit control but ensure you have it covered.

If you haven’t been managing your cash flow and you suddenly realise your business is in real danger of going broke because you need to make payments before your next sales invoice is due, don’t panic. As a short term solution you can take advantage of some of the invoice factoring companies that have popped up over the last few years. The fees are high, will give you up to 90% of the invoice value, but you can receive payment in days and confidentially so that your client will not know.

Smart cash flow management requires you to have visibility and understanding of your accounts. If you’d like to learn more about how you can do this, please contact me for a free consultation.

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