Keeping on top of your business’s finances is the best way to keep track of how your operation is running and whether you’re on track towards meeting your goals.
But hoping for the best isn’t enough – you need to be proactive otherwise your cashflow will suffer.
It’s a great feeling to sit back and watch the money come in, but without proper planning and money management, a positive cashflow is never guaranteed.
The more you do, the better your situation will be. Here are some ways you should be managing your cashflow.
Setting up a cashflow plan is the best way for any business to keep on top of the income and expenditure.
To make one, evaluate how much you spend on your essential bills, including payroll, utility bills and rent, purchases and investments.
By generating an overview of how much your business usually spends within defined time periods, you can create forecasts that will help you paint a picture of your future income and profits.
After the pandemic, you’ll know there are some things that are hard to predict that could damage your business. That’s why forecasting is such an essential part of your cashflow plan. As you’ll already know how much you expect to make and spend, you can plan to set some money aside in case of emergencies.
The same goes for your invoices. If you’re punctual and send your invoices on time, you can keep track of your clients’ payment deadlines.
Sending out invoices sporadically will mean less structure is in place for your clients, so late payments may be more common. Plus, if you’re sending your invoices late, why would your clients ever feel pressured to pay you on time?
Update your cashflow forecasts
Businesses tend to experience highs and lows throughout the year, especially newer ones. Some periods are busier than others, so with proper planning, you can account for this.
If you know your business is about to hit its busiest annual period, you need to look at how much stock you’re buying.
It’s very much a case of supply and demand. If your inventory is low and your footfall increases, you simply won’t be able to sell as much as you might have been able to. In short, that’s poor cashflow management.
Being unprepared also goes the other way. Spending out on large stock orders with a low footfall is like throwing money away.
You can also look into reducing costs in other ways. If there’s a supplier with better rates than your current one, consider switching. Or, perhaps you could work out a deal with your current supplier and reduce the price.
You can also change staffing levels to suit the amount of income your business generates. You don’t need a full rota if you’re seeing a slow drip of customers throughout the week.
Be (somewhat) flexible.
Being flexible when running a business can help you cope with any unexpected changes in your industry.
A money reserve will mean you have something to fall back on if prices suddenly shoot up. Or perhaps it allows you to invest and grow as a business. This will keep your business afloat while giving you a competitive edge.
Providing a level of flexibility doesn’t just help your business but your clients as well. If you have the extra cash, you could potentially extend your payment terms without it affecting your bottom line.
Get ahead of your cashflow
Keeping your fingers crossed isn’t enough when it comes to your cashflow. If you need practical advice on managing your business’s finances better, the team at HW Associates is here to help.