6 Tips to Help you Manage your Cash Flow
Cash flow is the lifeblood of your business. It can mean the difference between success and failure. Unfortunately, the world of business can be quite fickle. A variety of factors can impact your cash flow, including seasonality.
In light of such volatility, it is important for organisations in all industries to learn how to more effectively manage their cash flows.
Cash flow is actually a separate entity from profitability. While the latter is determined by calculating the amount of revenue less the cost of conducting business, cash flow is based on the collection of receivables that are generated from the work that your company performs. Even though your business could actually show a profit, you realistically might not see cash right away. In some cases, receivables could remain outstanding for 30 days, 60 days, or even longer. Such outstanding receivables can certainly be detrimental to any business, ultimately costing you in terms of interest and potentially damaging your relationships with suppliers and even customers.
There are a few tips you can use to improve your cash flow:
1. Manage Receivables:
Carefully manage receivables. If you are not already actively managing your receivables, there is a good chance that your payments will be late. Make it a point of instituting a policy of calling and actively asking for money that is owed to your company.
2. Implement Retainers
Implementing retainers and down payments can be another good way to generate cash flow. Many companies moved away from this practice in the past out of concerns that it would become a barrier to landing a deal. Unfortunately, some projects can literally take months to complete. Asking for a retainer or a down payment can help to alleviate this problem by bringing a positive cash flow into your company.
3. Milestone Payments
Milestone payments can also prove to be helpful for projects that drag on for a long time. For instance, alone with asking for an initial down payment or deposit, you might ask that a portion of the funds be released when the project has been halfway completed.
4. Evaluate Credit
Evaluating credit worthiness is another important step in improving your company's cash flow. Some companies feel they are simply too much in need of business to check a customer's credit worthiness. This can be a mistake that can ultimately hurt your bottom line. There are many tools available that can help you to understand a customer's credit worthiness. Dun & Bradstreet Credibility is just one of those tools.
5. Plan Ahead
Planning ahead can also prove to be crucial in managing your cash flow, particularly for forecasting times of the year that have a tendency to be slow. Take the time to understand your short-term as well as your long-term cash requirements as well as the cycle of payment terms and patterns you can expect from customers. Both steps can prove to be crucial for effective planning.
6. Manage Capital
Managing your working capital is the backbone of any successful business. Begin by establishing an expense flow plan that includes a list of your fixed and variable expense categories. This list should include the typical amount you pay as well as when that expense is usually paid. Developing this type of list can provide you with a powerful visual for determining when during the month you will need cash the most to meet recurring commitments.
Learn from the experts
If you would like a more hands on understanding of how to manage your company's cash flow, then join one of our business coaching programs. With many different programs to choose from, our business coaches can help you better understand the importance of having a good cash flow is for you and your business and the strategies to put them into place.
Find out more: Business Coaching Programs