Managing cashflow in your small business

NOTE: If you need help with your business’s finances, make sure you contact your accountant for advice specific for your business.

 

90% of small business failures are caused by poor cash flow according to Dunn & Bradstreet.  A scary statistic huh!  You might have an awesome business that’s ticking along and people LOVE what you do.  But unless you are managing your cashflow correctly, you might reach a point where you cannot afford to pay your mounting bills. 

 

What is cashflow?

Let’s start by establishing what cashflow is not:

  • Profit does not equal cashflow
  • Despite its name, cashflow is (sadly) not just about the cash flowing in.

Cashflow is all about the TIMING of when money comes in, compared with when it goes out. Although you’re making some great sales and profit, if your money isn’t coming in at regular intervals, you may not be able to afford your business expenses. This is not an issue exclusive to small business, even big businesses have to closely monitor cashflow, as their outgoings are usually much larger so they need to ensure they have sufficient incomings to cover their costs. Managing your cashflow is one of THE most important things in business.

 

Something you may not know is that I’m not just a business coach, my hubby and I also run a recruitment firm. As you will know, recruitment fees (i.e. our sales) can be large, but they are also very erratic!  Business can feel like it’s either famine or feast so I’m well aware of just how hard things can be if finances aren’t well-managed. Here are some first-hand tips on how to make it work:

 

Monitor your cashflow weekly

Start by simply tracking what’s coming in and what’s going out. Even some of the large corporates I have worked for use a simple Excel spreadsheets, capturing the timing of cash in vs cash out. When you’ve identified the timings of the inflows and outflows, you can use this information as the basis for your business decisions.  For example, can you negotiate delayed payment of a particular invoice/s?  

 

Increase your cashflow 

Another way to improve your cashflow position is to increase or stablise your cash inflows.  Some ideas for how to do this:

 

  • Add additional revenue streams – perhaps there’s space in your office you could sub-let or a new product you could add to your catalogue
  • Increase your prices – objectively look at your pricing, is there an opportunity to increase?
  • Seasonal promotions – for short-term cash injections, look at discounts or promotions you can run
  • Selling your assets or intellectual property- you may find there’s some unwanted business assets you can sell to give a short cash injection into your business

 

Manage your debtors

Staying on top of those that owe you money (in a positive and proactive way to ensure the relationships are maintained) is crucial to managing your cashflow.  Below are some great tips for dealing with this situation:

  • Prevention is always better than cure – ask for payment or at least part payment up front
  • Be the squeaky wheel – chase those receivables from the very first day of being owed
  • Do it on your terms – as a small business owner you can usually say “I’m a solopreneur, can you please offer 7/14 day payment terms?”
  • Communicate openly – to avoid discomfort, focus on the positives like how much you enjoy working with them
  • Seek advice – if you’re not getting an adequate response you can contact a debt collection agency and / or refer to your lawyer

 

Cash is king.  Stay on the forefront of your cashflow and make sure that your business is sustainable and has the capacity from a cash perspective to jump on any opportunities that arise. 

 

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