Cash Flow Essentials: What You Need To Know
It is no secret that cash flow is paramount to business success.
The cash flow in a business is precisely that, the flow of money. The money that comes in and goes out of a business. If your cash flow is bad, this can result in slow growth and in many cases a failure of a business.
In this post we are going to touch on the basics you should know about cash flow.
As a general rule. Cash flow tends to be worse in product based industries and construction.
This is because the products need to be purchased before the job is completed.
There are ways to manage this, which we will explain later. But stick to budgets, do not overbuy, have a plan of action as to what you really need to buy so you do not end up in excess.
If you are in a product led business, this does not mean that you are doomed, but more thought need to go into the procurement process.
There are many tools out there that can help you boost your cash flow.
They do work hand in hand with your processes, which we will touch on shortly. Using a cloud accounting software package which is currently up to date will help significantly, of course, we are big fans of Xero.
Although Xero does offer essential cash flow forecasting, there are also more in-depth cash flow applications that can be helpful when pitching to investors.
But remember Xero, like any other cloud accountancy platform, need to be up to date with current information. So ensure your bookkeeping is regularly completed and that the accounting software is connected to your bank.
Receipt Bank is another awesome app that can help with this. Keeping on top of your bookkeeping will also make you more mindful of your business costs, expenses and spending.
Arguably, your processes are the most important thing, when it comes to cash flow.
Use cash flow forecasts, especially before making any significant business decision.
Having clear terms in place will also make a big difference. Perhaps you can sort an agreement with your supplier in which you only pay when you sell. Or if we take the construction example, ensure that you receive a deposit which would cover the cost of the materials and a little of your time before you start the job.
Here is a bonus tip, if you can find a way in which your client or customer pays a monthly amount this is ideal. This will keep the flow going.
The 3 Points
At any point in time, you should know how much money you are owed and by who, who you owe money to and how much and finally who needs to be paid first.
Now the latter is somewhat strategic. You will need to know who has been waiting for the longest and what their payment terms are (you do not want to induce any extra fees).
Remember the other businesses you are dealing with have to manage their cash flow too!
The Bottom Line.
In short, cash flow is something always to be mindful of.
You need to ensure there is enough money in the business to pay your bills and to complete the work you have been commissioned to do.
Getting your process in shape can help tremendously.
Implement a cloud accounting system if you are not using one already. If you are, then make sure you are using it to its full potential.
Visit it regularly.
Revisit your terms and streamline your processes to be more cash flow friendly.
And above all, be mindful, do not stick your head in the sand. Knowledge is power!
About the author
Chloe Slade is the Marketing Manager here at Cone and focuses on creating content that brings business and lifestyle together. Chloe is keen makeup lover, foodie and loves to work from luxurous destinations.