Maintaining a healthy cash flow

Cash flow is the lifeblood of any business, and maintaining it is integral to its success. However, if your outgoing expenditure is greater than the cash coming into your business, it can soon result in late payments to suppliers and even worse, staff. In order to ensure your business thrives and survives, it’s important to maintain a healthy cash flow.

 

  1. 1. Plan a cash flow forecast

A cash flow forecast sets out how the future could look. It allows you to map out how your expenses will impact your cash flow, identify any potential shortfalls in cash and gives you the opportunity to prepare for these in advance. The process of planning a forecast can encourage you to look at how quickly customers are paying you for the work you do and what that could mean for your cash position. If that highlights a problem, you will need to consider solutions to bridge the gap.

 

  1. 2. Headroom is key

All business owners are at risk of incurring unexpected costs, no matter how well you plan your finances. A financial buffer provides you with the peace of mind that if your business hits a bump in the road, you have enough working capital to pay employees, suppliers and vendors during those difficult times. Being aware of what funding is available to you, even if you don’t draw it down, will give you peace of mind.

 

  1. 3. Stock levels

Monitoring your stock levels is one method of controlling business expenditure. Stockpiling can result in items that aren’t selling absorbing your working capital. Similarly, maintaining the right balance of stock can mean that key sales aren’t lost because you didn’t have enough inventory to fulfil an order. Understanding what you have and when you need it will create a deeper understanding of your customers demands whilst also adopting a cost-effective approach to the way you do business.

 

  1. 4. Grow your business carefully

If your business is just starting out, it can be tempting to rush into things to try to grow it quickly. With growth comes increased costs, and factors such as more staff and higher rent all need to be carefully considered. However, if there is too great a gap between the increased outlay of cash and initial sales, your business may find itself struggling for cash. Don’t take unnecessary risks when it comes to growing your business – build it up slowly to keep on top of your finances.

 

  1. 5. Consider invoice finance

If you identify a potential shortfall in cash, or extended payment terms, access to a funding solution is vital. Invoice finance is just one source of working capital finance, allowing businesses to access up to 90 per cent of the value of unpaid invoices. Rather than having to wait the standard 30, 60 or 90 days as invoice terms usually dictate, your business can access funds as soon as required which allows you to plan your cash flow more accurately.

 

For more information on how your business can create a healthy cash flow, get in touch with our team.