As cost-of-living pressures start to bite, it can be a very anxious feeling not knowing what your income or expenses would be from month to month.
Here are 8 ways you can try to make your cash flow more predictable and consistent.
- Keep a rolling 120-day cash flow forecast.
While you might find it hard to predict your cash flow for an entire year, most businesses should have a good idea of their income and expenses over the next 4 months. Start from an export of your Profit and Loss statement for the year to date (or prior 6 months), export that to a spreadsheet, and make your best, educated estimates for income and expenses. If you run business with seasonality issues, compare last year-to-date numbers for your baseline to start from for this same period this year.
- Refine your forecast model over time.
The more accurately you can predict your income and expenses, the easier it is to effectively manage your cash flow. As you make financial projections of income and expenses, work hard to learn from each round of predictions so that with time you become more and more accurate. With some effort, your business cash flow forecasts can become very accurate in the short term (over 120 days), any longer and it becomes harder and less reliable. This is why you must update your projections regularly – monthly in normal times (weekly in crunch times!)
- Look for Patterns
Once you have an accurate picture of your cash flow – past and projected – examine closely to clearly identify patterns you see. For example, do you have seasonality issues that cause your business to slow down in certain seasons? e.g., Pre-Christmas/Post-Christmas. If so, you can make sure you don’t build up assets, inventory, or staffing at a time when your business is about to slow down. Also, when you know about an upcoming down time, you can proactively come up with ideas to stabilise your income.
Look for ways to sell more in offseason times so the dips aren’t so great. Have special promotional offers well before the dip, encourage customers to buy earlier with incentives, expand your market, product lines etc.
- Plan for external factors that could impact your sales or expenses.
Make a list of things outside of your control that could affect your cash flow and your forecast. You’ll be surprised how powerful some quiet reflective time spent on a structure review on outside forces that impact sales or expenses can be in moderating your cash flow.
- Secure longer term customer contracts
Try to get longer-term contracts in place with your customers.
Can you go from month-to-month or order-by-order arrangements to annual contracts? How about multiyear contracts? The longer your contract period the easier it is to predict cash flow – consider an annual subscription model.
- Extend your Cancellation Notice
If you must have a cancellation clause to let your customer cancel, see if you can include a notice provision that requires sixty – to ninety-day (or longer) notice. The longer your sales cycle or production cycle, the more important it is for you to have “clues” that tell you where you stand on closing the business or producing your product or service. We do a monthly calculation of the potential sales in our prospect pipeline to give us expected sales volume over the next 90 days. The idea is that if we can spot a problem early enough, we can do something about it. It’s those ‘out-of- left-field surprises’ that can derail any business.
- ‘Do You Want Fries with That?’
Maccas are experts at this as they have their 15-year-olds trained up to do this very thing! Look for products or services you could cross-sell or up-sell. If you sell a product or service that is a ‘one time’ purchase, look for ways to expand on this sales opportunity? For example, is there any service plan that would increase their ownership of your product? Could you create and offer a next-phase service to follow your product offering?
When these 8 ideas are combined your cashflow will become more predictable and stabilised.
Contact Shannae Hewett on 55612643, if you would like to know how to do this in your business.
Have a great day!
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