Like many new business owners, you’ve likely been reviewing your monthly numbers and wondering where your money is, or where it’s gone.
If this is generally the case, you’ll need to implement a proper management system to clearly understand your cashflow situation – Our Profit First Cashflow Management System would be an ideal place to start.
Most importantly, it’s used to identify and fix any issues ASAP as incorrectly monitored finance can become a huge problem, very quickly.
Here are ten relatively simple ways you can effectively manage, increase and maintain positive cashflow within your small business:
Review your spending methods
The first thing you should be doing is revising how you are spending your money. Are you paying for all your expenses in cash? Or using multiple credit cards and other credit sources?
If you’ve developed a habit of loading up your credit cards for things like daily expenses, this will surely require some attention. However, the most effective way to track spending is to pay expenses from one place.
Using the Profit First system, open up an operating expenses account for all business expenses to be paid from. Organise expenses and payments to be deducted from a single card or account and simplify your life.
Introduce automation
Automation promotes bill-paying perfection and is one of the best ways to avoid late payments fees and accumulating unnecessary arrears.
It’s a common mistake among business owners; underestimating the complexity of keeping track of bills and due dates. This inevitably leads to late payments and contributes to negative cashflow.
Set up automation for bills where you can. It’s another thing you don’t have to try to remember every month, while simultaneously ‘forcing’ you to make bills and obligations a priority.
Utilising automation software such as Receiptbank or Hubdoc help with data/invoice capture and is a more effective way of keeping your Accounts Payable up to date.
Also, if the payment’s automatic, you likely won’t see it leave. Therefore, you’ll be less encouraged to spend on unnecessary things.
Focus on your inventory
Conducting a detailed review on your inventory could be a sure-fire method of liquidation and overall improving cashflow.
Inventory that has been stored for long periods and isn’t selling as quickly as you’d like may need to be sold off to pump some cash back into the business.
Having money tied up in depreciating goods is detrimental to maintaining positive cashflow. Sometimes it can even be beneficial to sell these at a discount rather than hold onto them.
Revitalise your inventory and see if there’s a way to turn unwanted stock into better-used cashed.
Set up a cash reserve
Providing your own safety net for when times get financially tough is an absolute must. Many businesses either overlook this completely or have very little savings or a cash reserve built up.
This is the idea of the Profit First System’s ‘Profit’ account detailing how and why you need to build a cash reserve for the business.
This can save you dipping into other important sources of funds like expenditure accounts and using credit when emergency cash is required. Building a cash reserve also assists with keeping a healthy cashflow situation by setting aside a percentage of profits each month.
Utilise electronic payments
Buy some much needed time and pay all of your bills and expenses electronically. This allows you to leave payments right up until the last minute enhancing positive cashflow.
Some credit cards will even offer grace periods which is exactly what you want when focusing on cashflow improvements.
Paying bills as they’re due rather than in advance helps build cash for you to use while waiting for those due dates.
Assess your operations
Reducing your outgoings is just as much if not more important than worrying about income when it comes to cashflow management.
Cutting out anything unnecessary or finding less expensive alternatives is a good start, however, don’t forget that time is also a cost. Perhaps assess other areas of operation such as hours you’re paying for, and for processes as well as employees or contractors reducing these where you can.
Invoice Management
Invoices are how you get paid. Sending them on time and making sure customers and clients pay them by a set date can make a significant difference in maintaining and increasing that positive cashflow.
It’s important that you clearly outline when invoices are expected to be paid by, even introducing overdue fees in some circumstances depending on your operations.
Consider using a Direct Debit company. Fees are usually minimal, and you’ll have the security and certainty on when you will be paid. This reassures you that you’ll be paid a certain amount by a specific date, helping you organise direct debits and other outgoings more efficiently.
Evaluate your insurance policies
It’s wise to review your insurance policies either annually or bi-annually. This is to ensure that your policies cover potential risks associated with your particular circumstances.
As business operations and structures expand and change, you could be saving thousands on yearly or monthly premiums by comparing policies on the current market.
Updating your cover to something more suitable or cancelling/downgrading to a more affordable policy is a win-win for you and your business.
Oftentimes if you’re a loyal customer, you can simply contact your insurance company and ask for a better deal.
Rent expensive business equipment
Sometimes your business requires equipment, machinery or other critical components that aren’t cheap. Outlaying monumental sums of cash on these items is disastrous for your cashflow. The next best option if you can’t afford to buy them is to rent or hire.
While you may not own the equipment, it’s much better to pay smaller amounts more frequently if getting your cashflow back on track is your primary goal – at least for the short term anyway.
Look into a small loan
Although usually reserved as a last resort, if all else fails, consider taking out a small business loan to get your cashflow moving in the right direction.
Much like a cash reserve, it can be beneficial to have a sum of money on hand to draw on only when needed. With it you’ll be able to invest the money straight into your business by spending on things like inventory, equipment, new projects and unexpected losses/expenses.
A small business loan is also great for recovery periods after seasonal or off-peak slumps without the need to borrow huge sums and burying yourself in debt. Just make sure you only use what you need and to not get carried away on insignificant purchases.
Managing the finances of a small business doesn’t have to be overwhelming. Take a few of our top tips onboard and you’ll start to see significant improvements in your business’ financial success and it’s day-to-day operations.
Need an experienced Bookkeeper to help manage your accounts and cashflow? See our Contact Us page and get in touch today!