Seven ways to improve your cash flow
JACK MOORE of accountancy firm Page Kirk talks about the importance of balancing inflows and outflows of cash within your business.
What exactly is cash flow?
Put simply, it's the net amount of cash and cash equivalents being transferred in and out of your business and represents the monetary activities of the company.
Cash inflow is the money that comes into your business, for example from clients, investors and so on.
Cash outflow is the money that leaves the business in wages and payments to suppliers and creditors. Cash flow gives a good indication to others of the monetary state the business is in and whether or not the company is healthy.
Why is a positive/balanced cash flow so important? It ensures that there are sufficient funds available to meet the demands of your business and keep it in good health. This allows the potential for growth. Owning a business is a very cash-heavy processso if your cash flow is negative, you will not have sufficient money available to do the things you need to do. There are not many businesses that can survive long term without a positive cash flow.
Here are seven initiatives that your business could implement in order to improve your cash flow:
- Budgeting
This helps your business cash flow, as you are saving money and you can keep track of the cash inflow/spending. Use software or Excel to break down what money is going in and out of the company.
- Build up the savings of your business
Keep a healthy reserve of money which is not allocated to anything else, and which you can use when your business needs it. Again, you could budget how much of your cash inflow that you want to go into the savings of your business. This will give you cover if unexpected scenarios arise.
- Have clear terms and conditions for your business and for yourclients
You want to avoid misunderstandings about payment dates and ensure that you collect the cash that is owed to your business. You could also invest in initiatives that try to encourage your customers to get payments to you on time or even early. This could include rewarding those who do pay up and penalising those who don't with late payment penalties or added interest.
- Try to increase your client base
You could focus on marketing and advertising – undertaking activity that improves your brand image and improves the number of enquiries and potential clients/customers you may have for your business.
- Review cash outflow
Take a careful look at every penny that leaves your business. What about subscriptions that you no longer need, for example? By cancelling them, you might significantly reduce your outflow.
- Create a cash flow forecast
A forecast helps your business to predict peaks and troughs in your cash flow. It includes a list of payments that you need to make for a period of time and the subtraction of your outgoings from your income, in order to see how much money you will have over that period of time.
- Consider the use of online software
Cloud accounting software enables you to have access to your accountancy information and figures wherever you are, including your invoices. You can access the information on any device; all you need is internet connection. This enables your business to have flexibility, but also peace of mind about your cash flow.
Whether you're a sole trader or a limited company, it's definitely worth talking to your accountant about cash-flow management. It could prove to be a very intelligent business decision.
If you would like to find out more about this specific issue, speak to one of our specialists by calling 0115 955 5500 or email enquires@pagekirk.co.uk.