In a precarious time when the cost of living is high, markets are still in recovery from a range of disruptors, including the pandemic, devastating weather events, and global political tensions, efficiently managing the flow of money in and out of your business is crucial for its survival and growth through this period. In this guide, we’ll explore some practical strategies you can implement to improve cash flow if you’re feeling the pinch right now, ensuring your stability and resilience in the face of financial challenges.
Understand your cash flow cycle
It’s important to start with a comprehensive understanding of your cash flow cycle. Recognise the typical cash flow patterns in your business, including periods where you experience high cash flow and when there tends to be less money coming into your business. Identify where other factors impact your cash flow, including severe weather events, overseas political turmoil, or interest rates. These external factors may impact your supply chain or your customer’s ability to purchase from you. Using this information to inform your cash flow forecasting will give you a better ability to anticipate and adapt to fluctuations in your cash flow, even when faced with the unexpected.
Create a cash flow forecast
Now you have a clear picture of your cash flow cycle and how it is affected by external factors. Apply this information to create realistic cash flow projections by forecasting both short-term and long-term income and expenses. You can use our free cash flow forecasting template available here. Regularly update these projections to reflect changes in your business and your market. This proactive approach enables you to identify potential cash shortages and plan accordingly. Talk to SBA for some help and advice about cash flow forecasting.
Streamline your invoicing process
Prompt invoicing and efficient payment collection are essential for maintaining a healthy cash flow. Use technology to streamline your invoicing process and ensure your payment terms are communicated clearly and up-front to your clients. Consider offering early payment incentives to encourage timely invoice payments.
Negotiate better terms with suppliers
Negotiate favourable payment terms with suppliers to align with your cash flow cycle. Extended payment terms can provide breathing room during periods of lower cash inflow. Maintaining strong relationships with your suppliers will allow you to negotiate better terms and payment arrangements.
Monitor your expenses and cut your costs
Reign in unnecessary spending to ensure your business has optimal cash flow. Make a habit of reviewing your business expenses frequently and identifying areas where you can save money with minimal impacts on the quality of your products or services. You could explore bulk purchasing options and scrutinise discretionary spending. Cost-cutting measures contribute directly to improved cash flow.
Build a cash reserve
Establishing a cash reserve is a proactive measure to cushion your business against unforeseen circumstances. Aim to set aside a portion of profits during periods of high cash inflow to create a financial safety net for when times are tough. Having some savings set aside ensures your resilience and flexibility during lean periods – you’ll thank yourself later for this one.
Consider your financing options
Explore financing options to bridge temporary cash flow gaps. Lines of credit, short-term loans, or alternative financing solutions can provide the necessary liquidity during challenging periods. Having these avenues planned and ready to go will save you the stress when times are tough, so you’ll be able to focus your energy on improving your cash flow situation in more sustainable ways. Use caution when considering finance options – you want to carefully assess the terms and impact on your long-term financial health.
Make the most of your accounting
Having a robust approach to your accounting and tax obligations is another great way to find savings and boost the cash flow of your business – that’s where we come in. To ensure you are making the most of your accounting and utilising tax-deductible expenses to their fullest, get in touch with us today for a chat.
Effectively managing cash flow is an ongoing process that requires diligence, foresight, and adaptability. By implementing these strategies, you’ll be able to navigate the complexities of cash flow management and build a resilient financial foundation for your business. Mastering cash flow is not only important for the survival of your business; it’s an absolute must for growing your business. too.
If you need help with understanding and managing your cash flow, get in touch with us today, and try out our free cash flow forecast template below too.