Updated: Jun 19, 2019
For a lot of businesses, January is a hard month for cashflow, and your business might be feeling the strain. It is the perfect time to review your processes and get new practices in place. With this in mind, here are our top tips on how you can improve your business's cashflow.
1. Examine spending patterns
It can be far too easy to pay pay pay without reviewing your expenses. Expenditure needs to be considered once a quarter, and I mean a thorough review. All contracts should be reviewed and renegotiated for a better deal if possible. Any non-contractual expenses - the key to this is deciding how these have served your business.
2. Increase credit control efforts.
If you haven't already read my post on tips on getting paid, then now is a great time. Aside from those tips on getting paid the actual outstanding debt needs to be reviewed. As a rule, a business should expect to have around 5 per cent sitting in the 60 days and over category. If your company has much over the 5 per cent, it's time to focus on credit control - get statements out, make contact with all debtors.
3. Monitor inventory
Keeping track of inventory is essential; it can tell you what is selling well and what isn't. It is all too easy not to realise how much of your cashflow is tied up in inventory. At points when cash flow is tight, it can be the ideal time to clear out the warehouse/your space for holding stock - this might mean doing a sale or similar. The main thing is to see your inventory as cash that could be made available.
4. Create a forecast
With most businesses, there are peaks and troughs; it is so important to plan your cashflow. If you know that you will make the most money in November and December but the least in January you need to ensure you have those funds to tide you over. What businesses should aim for is to have enough cash flow to cover all expenses the business would incur for a 3-6 month period (depending on your business type). Cashflow planning is one of the biggest reasons for companies failing so forecasting a year in advance is a priority.
5. Pay bills when due
We all want to be paid, and I am not advocating for paying anyone late. It is smart though to pick the optimum time to pay your bills. You may want to adjust the time you pay your bills so instead of paying them the minute they come in either; pay according to your suppliers discount - if they offer early payment discount or pay nearing the end of the payment period.
6. Review your prices
So I know a lot of business people that hate the issue of payment/money. However, you need to review your prices once a year - preferably at the start of the financial year and when inflation increases have been made known. In considering your prices, you need to know; What are my competitors charging? Have my expenses gone up? Has the marketplace changed? Your findings might mean you increase your prices, adjust your USP(Unique selling point), or it may mean that you realise you need to diversify your offering.
7. Have multiple income streams
While it can be great to do one thing and be the expert more often than not a change in the marketplace, increased competition and market saturation can make this difficult. The most profitable businesses have more than one revenue stream and have both passive and active income offerings.
We hope you will find these tips helpful. If you need help and support in getting financial documents in place from budgets, projections or cash flow forecast get in touch.