10 cash flow management tips for your business
Cash Flow Management Tips for Your Business
Cash flow management is an on-going issue for many SMEs
Cash flow covers the incoming of money into your business and the outgoing of money from your business. It can be easy to lose track if not constantly monitored, and once your outgoings rival your incoming cash your business will be on a steady slide to dissolution.
Are you one of the more than 30% of SMEs in Singapore with overdue payments? Without a working capital to operate, is your business suffering? Are you concerned that you aren’t getting enough business, fast enough, to turn things around?
All’s not lost; a negative cash flow can be remedied. Basically, you need to ensure that you’re only ever spending less than you’re bringing in – however it may not be that easy. Sometimes, you need to outlay cash to begin with in order to bring in more. For example, you may need to upgrade your technology in order to produce better products or services.
Here are our 10 tips for improving cash flow management
1. Have a dedicated employee to track cash flow
By monitoring incomings and outgoings on a regular basis, it’s much easier to stay abreast of how much is available at any one time. It doesn’t even need to be a productivity hole, as your employee can make use of accountancy software specifically designed to track daily incomings and outgoings. By maintaining a regular weekly or monthly report on cash flow, the chance your business being blindsided would be markedly reduced.
2. Manage and reduce cash outgoings
Cut expenses in order to reduce outgoings and leave your working capital as healthy as possible, for as long as possible. You can reduce outgoings in a number of ways. Some of the most common and useful methods are always shop around for the best deals and buy second-hand items. Potentially, you may not even have to buy anything; repairing what you already have may be just as effective and save you money. You can also consider switching to open-source software for basic tasks, like Google Docs, instead of purchasing the full Microsoft Office suite for every employee to use. Read our earlier post “Cost-saving Methods Your Business Can Try” for more tips.
3. Increase the amount of cash coming into your business
Good sales and marketing schemes can help to secure funds from the sale of your products in advance of creating or shipping out the product, thereby building up working capital more quickly. Consider deposits, subscription packages, or upfront payments and see how well they apply to your products or services. If there’s a way to receive payment for your product (even partial payment) before having to build the product, you lessen the risk of laying out funds for an uncertain sale. You may also have more excess cash to invest or earn interest.
4. Design upfront payment packages with repeat clients
If you’re providing a service or a product that’s used monthly, consider putting together a package that encourages clients to pay you for the work upfront instead of after completion. For one, they’ll be more likely to work with you once they’ve paid you. And a subscription service like this ensures you know what your upcoming monthly incomings are, allowing you to plan ahead.
5. Make the entire payment process as easy as possible
Make sure to send invoices promptly and keep them clear and easy to read. Consider delivering electronic invoices that can be tracked via email, and ditch expenses like printing, stationery, and post related to traditional printed invoices. Make the invoices easy to pay; use cloud or online banking wherever possible to keep things secure, fast, and superbly easy for clients to use.
6. Maintain a good credit rating with vendors
Delaying payments is an often used cash flow management tactic – but there’s a line to be drawn. If you cross it, you risk angering your vendors and potentially ruining relationships with companies that you need to run your business effectively. As much as possible, you should aim to pay by the deadline set in the invoice. And if for some reasons you should go over, make sure to get in touch with your vendor to explain why and sort out a reasonable way to make payment to them as soon you can. Paying your vendors and not making them wait or slip into debt themselves through waiting on you works to build trust between your companies as well, against future needs.
7. Be prepared for surprises at all times
You can never know when a pitfall might occur, so it’s best by far to always be as prepared as possible. An emergency account topped up regularly can create a stockpile of funds to access should the unthinkable happen – say, a client goes late on their invoice, or your office IT equipment shuts down unexpectedly. You can also put this account to work through sound investments so that it can gain interest or value while it grows bigger.
8. Put your cash to work for you
There’re many ways to get your cash hoard working for you instead of just making it idle, doing nothing. Chat with your banker to make sure that your accounts are all on the highest interest rates possible and keep them monitored so that once fixed interest rates begin to fall, the sum can be transferred to another account. You can also have monthly costs go out right before the end of the interest-gathering window in order to maximise gains. Of course, be sure to stay liquid in case you need the funds for contingencies.
9. Use a business credit card and keep the bank informed
By separating your personal and business accounts as soon as possible, you can begin to build credit in relation to your business immediately. This can only help further down the road when you wish to take out a loan, as the bank will be able to track your credit history and get a feel for how much of a risk your business is for them to lend money to. You can also build a trust relationship with your bank by making sure they’re kept up-to-date with your financial expenditures. Should you foresee an issue, you can pre-warn them and if you expect a windfall, you can also let them know.
10. Set attainable targets and then stick to them
Put in place a series of short-term, mid-term and long-term goals for cash flow endeavours – and encourage employee participation. Targets are a proven way to gamify regular workplace activities and encourage competitive behaviour. This can reduce outgoings as employees look for ways to avoid spending money. Work on reducing your outgoings in this manner and you’ll be able to get your cash flow management under control.