Why Cashflow Is the Lifeblood of Small Business

Your cashflow shows the overall health of your business. The money that you have left each month, after you’ve received payments from clients and paid your outgoings, is your net cashflow. If you have money left over, then your cashflow is positive and your business is in good health. If, on the other hand, you have more money going out than you have coming in, then your net cashflow is negative, and your business could soon be on life support. Read on to find out how to establish good cashflow practices to protect your business.

Work Out Your Cashflow Forecast

A cashflow forecast is a tool that you can use to get a broad overview of your finances for the coming weeks, months or year.

On your forecast, you would include:

  • Anticipated income from sales.
  • Costs and overheads.
  • When payments leave your account for things like loan repayments, payroll, and taxes.

Setting out this information helps you to plan ahead and make decisions about staffing costs, raising prices, outsourcing, and getting additional finance in place.

If you do need to obtain financing, then your lender will want to see your cashflow projections, so it’s a good idea to get into the habit of producing cashflow reports so that you have one ready when you need it.

Ways to Improve Cashflow With Your Customers

Use payment apps so that you can take payments from customers right away instead of sending out invoices or waiting for checks to clear. Take a look at solutions like Apple Pay, Samsung Pay, and Pay Anywhere, to see if they would help you to get faster payments from your customers.

Set faster terms wherever possible. Some customers won’t want to lose the benefits that come with having 60 or 90 days to pay, but others will work with you where they can.

Make sure that you have an accounting system set up that automatically sends out payment reminders for late invoices and alerts your staff to make follow-up phone calls. Often invoices are paid late due to the customer being disorganized rather than any malicious intent, and a reminder is all that you need to get paid on time.

If you need to, don’t be afraid to add a note about late charges to your invoices. When customers know that late payments will cost them more money, they are more likely to prioritize paying you.

Use accounts receivable financing to get paid for your invoices immediately. Different invoice factoring companies have differing levels of service, so shop around for one that meets your needs.

How to Manage Your Expenditure to Free up Your Finances

Look at every expense that your business has. Is each one necessary? If it is, research your options and see if you can find a lower cost alternative. For example, you could switch to a bank with more competitive fees.

If you purchase stock, can you negotiate a discount for buying in bulk, or can you get freight included in the price?

Try to arrange better terms with your suppliers. Having a 60 day buffer before payment is due gives you time to collect from your clients.

Don’t forget to claim all of your tax deductions. You can claim for business use of your vehicle, paying contractors, rent on your premises, utility payments, supplies, repairs and maintenance, insurance costs, advertising, legal and accounting fees, interest on business loans, business lunches, and more.

It’s a good idea to hire an accountant instead of wrestling with the tax forms yourself. Your accountant will know all of the deductions that your business can claim, and claiming deductions that you may well overlook, can more than cover the accountant’s fee.

Use an accounting system to keep your accounts organized so that your accountant can get your taxes prepared on time and save you from late filing fees and interest payments. You can find a wide range of low cost and free accounting systems online. Some of the most popular systems are QuickBooks, Sage Online, Wave, Zoho Books and FreshBooks.

It’s important to keep a close eye on your cashflow and take swift action when finances get tight. By working out your cashflow projections and taking steps to keep your business’s lifeblood flowing, you’ll be able to plan ahead and work out which courses of action to take and when to take them. The technology available today makes keeping control of cashflow easier than ever, so running that side of your business doesn’t need to be a constant source of friction for you.

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