Cashflow management is the lifeblood of any business. Whether you’re running a small start-up or a large corporation, maintaining a healthy one is crucial for your business’s sustainability and growth.
But how can businesses maintain a healthy cashflow? It’s not easy, but here’s a comprehensive guide to keeping your business financially healthy through effective cashflow management.
Why maintaining a positive cashflow is so important
Cashflow refers to the movement of money in and out of your business. A positive cashflow means that more money is coming into your business than going out; a negative one indicates the opposite.
Cashflow management involves tracking these movements to ensure you always have enough cash on hand to meet your obligations and plan for your future needs. Specifically, good cashflow management helps you:
- Meet financial obligations: Ensure you can pay employees, suppliers, and creditors on time.
- Avoid debt: Prevent unnecessary borrowing and interest payments by maintaining a positive cash balance.
- Seize opportunities: Have the liquidity to invest in growth opportunities, such as new projects or expansions.
- Build financial stability: Create a buffer against unexpected expenses or economic downturns.
Cashflow management ultimately boils down to two key ideas: increasing your income and decreasing your outgoings as much as possible.
Cashflow management: increasing your income
Efficient invoicing
Implementing efficient invoicing systems ensures timely and accurate billing, reducing the time between providing services or delivering products and receiving payment. This can improve cashflow by accelerating income streams.
Similarly, clearly outlining payment terms and conditions on invoices can encourage prompt payment from clients. Offering incentives for early payment or penalties for late payment can further incentivise timely settlement of invoices, boosting income.
Finally, make sure that you also maintain strong relationships with clients and customers – a happy customer is far more likely to pay on time. Social media and customer relationship management (CRM) systems can be extremely useful here.
Diversify revenue streams
To improve your cashflow, you could explore diversifying your revenue streams by offering additional products or services that complement your existing offerings. This can help increase overall income and reduce dependency on a single source of revenue.
Review your pricing strategy
A strong pricing strategy can help you improve your cashflow. One option is to increase prices, but that could have the unintended consequence of putting off customers. You could, therefore, consider introducing limited-time or bargain offers to put stock off the shelves and boost the amount of money coming into your business.
Cashflow management: controlling your outgoings
Expense tracking software
Expense tracking software can monitor your business expenses, which will, in turn, help you analyse and control your spending more effectively. For example, you might identify areas of overspending or inefficiency that you can rectify to reduce unnecessary expenditures.
Renegotiate supplier contracts
If money is tight, you can try to renegotiate with suppliers to get bulk purchase discounts or extended payment terms. If you have a strong relationship with them, you might be surprised at the result – remember, your suppliers may be struggling to maintain a positive cashflow themselves and might welcome the opportunity to shift stock.
Energy efficiency measures
Implementing energy efficiency measures to reduce utility costs is a great option for businesses looking to save money. Simple changes such as installing energy-efficient lighting or optimising heating and cooling systems can lead to significant savings over time.
Better inventory management
When you have stock that you can’t shift, that’s money tied down. By accurately forecasting demand and maintaining lean inventory levels (without them being so low that you run out of stock during busy periods), you can minimise storage costs and reduce outgoing payments for excess inventory.
Need help with your cashflow management?
There’s a lot that goes into cashflow management and it’s easy to become overwhelmed – but you don’t have to go it alone. Instead, you can work with an accounting firm like AssureTax to create a strategy that works for your business’s specific situation.
Talk to us about cashflow management.