Turnover is vanity, profit is sanity, and making sure you don’t take your eye off the day-to-day cashflow is essential for maintaining a successful, profitable, functioning business. Here are our five essential tips for a healthy cashflow.
1. Plan ahead
Fail to prepare, prepare to fail. Your cash flow forecast should, at the very least, cover the next three months, allowing you to see when big payments and invoices are due and mark out any potential trouble spots well in advance. This will help you to avoid any unnecessary costs, especially during lean months. It also means that you can work out when to schedule large purchases or hire new staff with the least financial disruption to the business, figure out what sales income you need on a month-by-month basis to stay afloat, and, if necessary, apply for temporary financial assistance to get you through any tough periods on the horizon.
2. Presume the worst
This is no time to be optimistic. You need to know that you can survive if something drastic happens, like a major customer going bust or the late/non-payment of a crucial invoice. Have a back-up plan ready to go if things go wrong, and never give yourself a false sense of security by entering income into your cash flow forecast before the order is confirmed and preferably backed up with a Purchase Order. It’s also a good idea to check up on new clients to make sure that they are creditworthy, to avoid bad debt further along the line. Be willing to turn down work or demand upfront payment if you have concerns.
3. Push for prompt payment
Once the job is done, get paid for it – fast. Send the invoice straight away, confirm that it’s been received and, if it’s not been paid by the due date, chase it immediately. Also, encourage your customers to pay you using “faster payment” transfers from their bank and consider asking for a percentage upfront, before you start work, for orders that are very large, being delivered overseas or made by a new, unknown client.
4. React quickly
The great thing about a well-maintained cash flow is that you can see problems forming long in advance and can act before it is too late. The cash flow will tell you a lot about what is and isn’t working in your business, so analyse it to figure out what is going wrong and address the problem head on. For example, have you made fewer sales because of a rubbish product, a demotivated sales team, or because you had such a great month previously that all your time is taken up on doing the actual work for clients, leaving no time to source new business? Once you know the answer, figure out how to change it – fast.
5. Be a model customer
Make sure that you pay your own suppliers as promptly as you would like to be paid yourself. Maintain a dialogue and good relations with them. As well as helping you to keep your cash flow on track, this is absolutely essential should you come up against problems later on – as a well-liked, trusted and reliable customer, you’ll find it far easier to negotiate a one-off payment delay to ease cash flow in an emergency.