Cash is king. As discussed in the last post about why a business should have a cashflow forecast, running out of cash in a business can cause business failure very rapidly. So once you have created a cashflow forecast, what if it doesn’t look any good? What if it shows you that you are going to run out of cash in the near future?
Below we run through the top 7 things you can do to improve the cashflow in your business. None of the tips are difficult but if you do need support, the team at Entire Bookkeepers is just a phone call or email away.
Never take your eyes off the cashflow because it is the life blood of business..RICHARD BRANSON
1. Manage Your Accounts Payable
When initially setting up a business, sometimes it can be difficult to establish credit accounts with suppliers. Often the supplier will ask for trade references and if you are very new, these can be difficult to get. However, once you have been operating for a period of time, it is important to review the terms and conditions of all of your major suppliers. Particularly if you are turning over large volumes, you could ask for better prices, better trading terms and volume discounts. This tip will reduce your cost of goods and drop profit to your bottom line as well as improve your cashflow.
2. Manage Your Accounts Receivable
A business owner told me the other day that her biggest headache is when she engages a contractor to complete a job and then is not invoiced for that job for weeks or even months. It is critically important to have a system and process in place to ensure all work performed or goods and services provided are invoiced immediately and depending on your business, not allow credit terms to any customer who you do not have a credit account agreement with. For example, we had a client who at the start of our engagement faced constant cashflow issues. We identified that the business should not have the issues as all of their transactions were paid for via cash or credit card at the time of purchase.
We discovered the cash from sales sometimes stayed in the business safe for days to weeks at a time before being banked causing a lack of available funds when bills needed to be paid. They also had no clear understanding of what their daily turnover was. The change we drove was regular deposits of cash which reduced the risk of theft, increased their understanding of their business and meant the business did not experience cashflow issues any more.
3. Manage Your Stock
Depending on the type of business you run, you may or may not hold stock on-hand. The cost of storing, handling and insuring stock can be a huge cashflow drain on a business if not well managed. Implementing a Just-in-time system or even changing your whole system for example to drop-shipping may save your business large sums of cash on an on-going basis. Making sure that you manage redundant stock can also support a healthier cashflow.
4. Review Your Overheads
It is super easy to slip into the trap of signing up to lots of small, recurring expenses like subscription based platforms that your business may longer need or use. By regularly reviewing all of your overhead expenses in the business, you will find and stop payments for services that you no longer need earlier leaving more money in the bank. Reviewing your overheads also gives business owners the chance to question the necessity of particular expenses and may prevent or reduce the risk of theft or fraud from within the business.
5. Review Your Prices
Once you have created the cashflow forecast for your business, it is super easy to adjust the prices you offer for your goods and services to judge the impact on your cashflow. For example, if you estimate a 10% price increase and you think that you may lose 2% in volume of sales from this increase, these projections can easily show how that will look in terms of your cash on hand and the profitability of your business.
Many businesses actually learn that they can be more profitable and have better cashflows if they reduce their volume of sales and increase the price of the goods and services they offer.
6. Use Technology To Your Advantage
There are cloud based platforms for just about everything these days and most of them are cheap, simple to use, have great tech support and integrate with each other (i.e. they share information to reduce doubling up on entering information on different systems).
One client of ours is a trades company who are 100% digital. They have great cashflow because they use Tradify to manage their quotes, scheduling, jobs, job costs, ordering, invoicing and timesheets. Everything they do in Tradify gets automatically added into Xero so then when I am doing their books, everything is up-to-date and easy saving them money on the cost of bookkeeping and on the cost of the accountant at the end of the financial year.
They have even linked their website enquiry form into Tradify so if a customer wants to get a quote, their details are automatically entered into Tradify from the website enquiry form which can then be converted into a job if the enquiry turns into a sale.
The cost of administration is not the only benefit of this system, they also never miss invoicing a job and they capture all job costs against each job so they know their profitability on a per job basis, not just on the cashflow and profit and loss.
7. Get Expert Support
The process of learning in business can be steep and difficult. Sometimes the easiest way to get to the outcome you want quicker is to engage an expert to work with you. After years and years of managing cashflows for different businesses in different industries, Entire Bookkeepers can support you through the whole process.
Also, business leaders do not have to go it alone when it comes to learning how to build and manage a cash flow forecast. Entire Bookkeepers have developed a Cash Flow Forecast Tool
that is free to download
and includes 15 minutes free personal instruction on how to build the forecast. The tool simplifies the process of creating a 12 month forecast that can be used to plan and make good strategic business decisions.