What separates successful businesses from those that fail? It’s the ability to effectively manage cash flow. There are reasons experts stress on effective cash flow management to thrive and succeed in business. That said, it requires more than just having enough cash on hand to cover your expenses.
It also entails working out how much money you need to pay the bills on time. Therefore, knowing how to improve cash flow is essential to the financial success of a business.
A chartered accountant in London can help businesses increase their cash flows through a number of techniques, including financial information analysis, revenue stream and profit margin maximsation, cost-saving possibilities identification, and the use of sound financial management techniques.
in this blog, we will talk about everything you need to know to improve your business cash flow:
What is Management of Cash Flow?
Cash flow management is monitoring and managing how much money comes in and goes out to accurately predict cash flow needs. It involves tracking, evaluating, and continuously improving the net amount of cash received—minus the expenses/costs. It is all about managing the company's finances wisely so that you have the capital to expand.
Efficient cash management techniques help forecast the amount of funds that will be available for paying bills to vendors, debt repayment, and wages. Businesses must adopt efficient cash flow forecasting so that proactive steps can be taken in place of reactive measures in case of any financial problems. As such, a business is better equipped to manage risk and base its borrowing decisions on its financial standing.
How to Increase Cash Flow in Business?
If you are keen on knowing how to improve cash flow, then here are a few suggestions:
1. Proper Forecasting of Cash Flow
For any business, accurate cash flow forecasting is essential to identifying potential times when it can face financial difficulties. Make a cash flow estimate on a weekly or monthly basis for the next three months or longer if possible. If you are creating a cash flow forecast, it's vital to keep your bookkeeping up to date.
Even though it might be difficult to keep track of your expenses and generate invoices, you'll be able to forecast more precisely, which can help your business succeed in the long run.
To deal with trade debtors, you can think of putting in place a credit control procedure. Such a procedure can help get payments on time, avoiding overdue payments that can become aged debts.
Ensure that you routinely update your forecast. The frequency at which you revise your estimate will rely on the accuracy of your forecast, fluidity of cash flow, and to what extent healthy cash flow is critical to the business's strategies.
Businesses can get the help of a chartered accountant in London, leveraging the expertise in forecasting cash flow, managing debtors/creditors, maintaining all records up-to-date, and aligning business goals with strategies for stability.
2. Train Your Employees in Cash Flow Management
Instruct your sales, purchasing, and stock management teams on the value of cash management and how to collaborate effectively with your financial team to maximise cash flow.
This implies that depending on past payment history or sales volume, the sales employees provide various payment options to various consumers. It's possible that the purchasing division works with suppliers to arrange phased payments or extended terms of payment.
The sales team can work with your stock management team to conduct a promotional offer to sell a product that isn't moving quickly.
3. Engage in Productive Internal Communication Within Your Company
Dealing with cash flow issues will be a lot easier for you and your employees if they can predict accurately. Make sure that everyone participates in regular updates of the forecast and include all pertinent departments in your interactions regarding cash flow.
Lastly, compare the prediction to the actuals with your team members to determine the reason for any significant deviations so that you can make better forecasts in the future. Assist your employees in realising that while variations are to be expected, the goal is to become more conservative with regard to purchases, sales, and inventory levels for the next projections.
4. Ensure That You Receive Payment on Time
Communication isn't only a problem within the company; it may also shorten payment delays. This is crucial, particularly for small businesses interacting with larger companies. You might take the following actions to receive payment sooner:
- Before accepting a new client, run their credit; if in doubt, require upfront payment.
- Issue invoices as soon as possible, making sure they contain all the necessary details to enable easy payment.
- Pursue unpaid invoices, paying particular attention to clients with the longest unpaid invoice histories or a track record of late payments.
- Establish a clear procedure for reporting late payments, with the exception of specific situations such as a death in the family.
- Negotiate clients to pay more quickly in exchange for a discount for early payments.
- Rework your terms of payment with clients to decrease the duration of the credit you provide.
5. Control Your Stock and Fixed Assets
You can free up additional cash if you can sell off some of your stock. It also includes overhead, which are the expenses you incur every month regardless of how many products the business sells. Reviewing these expenses is particularly crucial if your turnover has decreased and is probably going to stay that way for a while.
To keep your stock expenses under control, think about the following:
- Use a "just-in-time" strategy for purchasing manufacturing supplies to cut expenses associated with stock keeping, such as warehousing and inventory management. This should be weighed against the requirement for adaptability and the capacity to act fast in response to changing client needs, especially in light of the degree of risk and unpredictability associated with supply chains.
- Make arrangements with your landlord for a shorter rent term or free rent period.
- Whenever feasible, try to get better terms on your utilities and other overhead.
- If you find yourself overstaffed, instead of firing employees, think about shortening the workweek so that you may more easily rehire when the economy turns around.
Fixed assets take longer to sell than current assets such as debtors and might hold up a lot of capital. It’s beneficial to periodically examine your fixed assets ledger to find easy ways to decrease your fixed assets:
- Consider if the capital investment you have planned is really essential.
- Think if you can lower your monthly expenses by leasing rather than buying.
- Understand if it is possible to generate positive cash flow by selling underutilized assets.
How Unicorn Accountants Can Help You?
Knowing how to improve cash flow is essential for a business to thrive. Doing so goes beyond just having sufficient money. It entails forecasting needs, smart financial strategies, and optimizing receivables.
Nevertheless, making changes to your cash flow is a difficult process that will probably take some time to reverse if professional help from a chartered accountant in London is not obtained. Often, it requires a shift in perspective and business practices to reach a position where you can confidently declare that your cash flow is steady and positive.
Unicorn Accountants can offer holistic financial guidance that assists businesses in strategic cash flow management, leveraging robust financial strategies, and maximising profits. To know more, contact Unicorn Accountants today!