How Business Owners Can Take Control Of Their Cashflow
From my own experience of working with hundreds of business owners over the years, one of the key things I’ve learnt is how all businesses, across all sectors, are dependent on cash in the bank.
Cashflow is vital even if you have a profitable business and a great business model. It’s a key factor that will ultimately determine if you will fly or fall and this applies to all businesses irrespective of size.
Put simply cashflow is your money in against your money out and it needs to be in a positive state for a healthy, stable business, so that you have funds in place for the day to day, for business growth activities and also for emergencies. For service businesses and consultancies you always need to have the cash to cover all of your staff wages, to make sure all suppliers paid and to have enough to pay all of your taxes before the deadline dates.
However, don’t despair, since so long as you have a profitable business these issues can all be solved and here are some useful, practical ways for you to start to take control:
1. Have an effective finance function in place – and keep your books accurate and up to date
Using a great accounting software tool like Xero will be a good start but you need to have an experienced professional looking after your finances so that you have an accurate picture of things. Your finances need to be clear and error free so that you can have confidence that the vital information you’re looking at is correct.
2. Focus on cashflow management as well as just sales or profit
So you should have a regularly updated cashflow forecast in place that you can monitor. Many businesses have no cashflow tracking in place at all and hence don’t know in advance when money is arriving or leaving their bank account. This often results in critical cash shortfalls at times when you may need to pay VAT, corporation tax, key suppliers, or staff wages. This is important stuff so please make sure you’re looking after yourself and your business by monitoring cashflow.
3. Build a cash reserve – a buffer for emergencies
You never know when unexpected emergency situations can crop up – nobody was really expecting covid-19 – so it’s always a good idea to have some form of cash reserve or an accessible line of credit that you can use if you really have to. So if you know you are able to steer your way through any tricky months by having access to a buffer of cash or overdraft then you don’t need to worry and stress quite so much.
4. Consider raising your prices
Most people realise that selling at a higher price has the potential to bring in more revenue if you don’t lose sales, but the vast majority of entrepreneurs fail to appreciate the huge impact price increases have on profit – and hence positively on cashflow. Look at the numbers and do the maths and it’s clear to see! So increasing your average order value is a real positive whether by increasing price and/or looking for additional revenue streams by cross selling other service offerings.
5. Reduce your overheads
Whilst this option isn’t likely to have the biggest impact on improving your cashflow it’s still well worth analysing all of your existing overheads to see if there’s anything you can reduce. Sometimes business owners find that they are paying for things each month that they no longer use – if so cancel them and save the money. There may also be some products or services that you use that you could get more cheaply elsewhere. So it may be worth spending just a little time shopping around to get a better deal – or maybe calling your existing supplier to get them to give you a better deal if this is reasonable.
So, if like may other business owners, you’ve had cashflow issues before, you can hopefully now see that there are quite a few things that you can very easily do to overcome the problem.
Whatever you do, don’t bury your head in the sand and just hope that the problem will go away – we both know that it probably won’t.
Take action, focus on some of the above points that you feel you can action quickly and easily, and make your cashflow issues a thing of the past!
