How to proactively manage cash flow in your business?

Here are a few ideas to help you manage your cashflow. After all, Cash is KING!

Agree on payment terms upfront

Healthy cash flow relies heavily on knowing – and agreeing on – clear payments terms with your debtors. Suzannah Nichol, chief executive of construction industry body the National Specialist Construction Council, told the Guardian small business network: “”If you don’t start off knowing what your payment terms are, it is difficult to know when you are going to get paid, ” she says. “If you don’t know when a payment is overdue, how are you going to manage your cash flow?”

The type of business you run will determine what kind of payment terms are appropriate. If you sell goods, cash on delivery is a reasonable request. If you provide long-term consulting projects, 50% upfront could be requested, with the remainder to be paid on completion of the assignment.

Work out your break-even point

This tip, given by QuickBooks, is touted as a good starting point for goal setting. “You should know when your business will become profitable, not because it will affect your cash flow — because it won’t — but because it gives you an early goal to strive for and a ready-made target for projecting future cash flow. Negative cash flow and negative profits make for a grim combination. Focus your efforts on managing your cash flow with an eye toward reaching that moment when you realize your first profits,” they advise.

Set cash flow targets, and measure against them consistently

This involves looking ahead to the next six to 12 months and projecting what the company will need, considering seasonal fluctuations in demand, the need to pay out bonuses at certain times of the year, and so forth. One of David Bowie’s 2013 hits was entitled “Where are we now?” Managers would do well to keep that question top of mind when it comes to cash flow. Some financial controllers advise updating your actual cash flow records weekly to have an accurate, ongoing sense of expenditure.

Maintaining a healthy cash flow for your business not only gives you peace of mind but ensures longevity for your business. If you need assistance managing your cash flow or putting a good system in place, consider contacting The Finance Team. One of our highly qualified and experienced financial executives can assist your business with this aspect of financial management which is critical to your future success.