Keeping cash flow under control
Cashflow is the lifeblood of any small business. It may seem obvious, but its importance can sometimes be overlooked when you’re busy running a business. It's a dangerous strategy to concentrate on demand for products or services, especially if you have too many fixed assets and liabilities.
Whether launching a start-up or growing an existing business, cash flow should be your top priority, protecting the flow of incoming cash and guarding against too much going out too fast. To help you keep your cash flow under control, we’ve listed some tips that we hope are useful.
Plan ahead
Taking a proactive approach to cash flow means you always know what ‘s on the horizon in the months to come. That means you can plan accordingly and have funds lined up, putting you in a stronger position. Always issue sales invoices timely. Automated payments may be a good way of getting paid without spending time chasing invoices.
Agree terms
Most businesses cannot afford to wait for months to get paid. Unfortunately, some larger organisations force extended credit terms onto their suppliers or delay payment for longer than the agreed terms. If you need to contract with a larger company, ensure you agree to payment terms that work for you and ensure your customer honours this agreement. If their terms don’t work for you, it may be better to walk away. Sometimes, having many smaller customers can be a good thing, as you’re not overly dependent on any one of them.
Look after your suppliers
If you want to ensure supply reliability, keep to the payment terms you agree with your suppliers. The basic rule is to treat your suppliers as you would wish to be treated. That way, they can trust you to pay on time and will try hard to look after you.
Keep cash flow forecasts up-to-date
Make sure you understand the amount of working capital you need to operate your business and keep up to date with cash flow forecasts. Your circumstances may change if you lose a significant client, take on extra staff, introduce a new project or service, move to larger premises or stock up ahead of a busy period, so carry out regular cash flow projections that factor in any changes.
Reassess and review
Regularly review your situation, checking to see how the numbers are stacking up, especially ahead of busy periods. Always be aware of what's coming in and going out, and be aware of any new challenges, whether of your own making or down-to-market conditions.
The Third Rule
A solid financial plan will help your business stay flexible, ensuring you capitalise on growth conditions, cope with unexpected market shifts and weather any adverse conditions. It’s always good to have some cash in reserve, giving you the flexibility to update equipment, extend payment terms or introduce additional inventory. Think about the third rule: one-third for taxes, one-third for dividends, and one-third left in the business.
Shop around
Always weigh up your funding choices when looking to grow your business. Make sure you understand any fees and charges upfront and remember that the time to negotiate is before you sign, not afterwards.
The golden rules
Don’t borrow more than you need to, don’t deal with companies that don’t pay on time, treat your suppliers well, constantly review and reassess, and always keep some cash in reserve – these are the golden rules when running a small business.
The other golden rule is if you can’t eliminate risk, then mitigate it through appropriate insurance, ensuring you, your business and its assets are protected – which is where TMD can help. With over 50 years of experience arranging tailored insurance for a wide range of businesses across all sectors, we can advise on the optimum solution for your needs, ensuring you have the right level of cover in place. Our business is your protection: to discuss your requirements, whether you’re looking to arrange, renew or make changes, call TMD on 01992 703 000 or email insurance@mcdonaghs.co.uk