How to manage your business’ cash flow

Cashflow (or lack of it) is a constant challenge for all business owners. I often refer to ‘cash’ as the oxygen a business needs to survive day to day. It is a critical factor which leads to the success or demise of your business.

If it’s this important, why don’t we have better tools and processes in place to manage it? Cashflow management is time consuming but it’s also critical to your business operations. There are many articles on the internet featuring textbook answer to cashflow management and links to resources, however these are often ineffective and confusing.

So, here are some of ‘real world’ tips:

Keep it simple!

Are you searching for an amazing, fully automated tool that will manage your cashflow, forecast your cash position daily and tell you when the business will need more cash to meet daily operational requirements? Unfortunately, it doesn’t exist (yet!). I have reviewed most cashflow management tools on the market and in my opinion, the products that pitch this are not there (yet). They will help you map cashflow but they are totally dependent on the information entered into your accounting system. Often this is where the problem starts.

I feel a simple spreadsheet is the best tool to manage cashflow forecasting. If you are struggling with cashflow management, email me for a copy of our template to get you started.

Forecast your position

Cashflow management is about looking forward. You need to understand the business’ daily and weekly payment commitments (and when they fall due). You need to project when income will be received. It’s also about constantly updating for your current bank balance. By forecasting your cash position on a weekly basis, you gain a much greater control over cashflow. I suggest you forecast 12 weeks in advance to identify any potential cash shortages and put strategies in place to manage these.

Stretch it out

How many times have you had to put money into your business to pay bills or wages? What would happen if you didn’t have any money to put in? If you know in advance there is likely to be a cashflow shortage (by using our cashflow template), then you can put a plan in place to overcome it. Call people who owe you money, contact creditors and stretch out payments or make a payment arrangement with the people you owe money to. By ‘managing’ your cashflow in this way, it’s amazing how far you can stretch it – without the need to put your personal funds into the business.

Understand your cash conversion cycle

A key part of cashflow is understanding your business cycle. How many days does it take for you to convert your time or stock into cash? How many days does it take you to collect money owed to the business? On average how many days do you take to pay your bills? This is known as the ‘cash conversion cycle’. You can calculate and track these numbers. This is a great way to understand the efficiency of your business cycle and start putting strategies in place to improve it. If you can reduce your cash conversion cycle by a few days, you can increase your business cashflow by thousands of dollars!!

Managing cashflow is a challenge for all business regardless of turnover.

Call us today to find out how we can help get the cash flowing again!

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