Ways To Improve Your Cash Flow

Are you thinking of ways to improve your cash flow? Having a positive cash flow is key to your business success. All in all, it amounts to controlling your expenditure and regulating your income. In this article, team4 looks at some of the most common cash flow problems you might experience. We also give you our tips for preventing them from happening in the first place or fixing them if they do. First of all we consider what cash flow is, what constitutes a healthy and positive situation, followed by eight of the top causes and things you can implement to improve your cash flow.

The definition of cash flow and the importance of creating a cash flow forecast

Cash flow is a measurement of the amount of cash that comes into and out of your business during a particular period of time. You are aiming to have a positive cash flow whereby more money is coming into your company than is going out. Conversely, a negative cash flow is the opposite and if this goes on for any length of time, it will become increasingly difficult to pay invoices, cover expenses and pay wages. Even if you have a profitable business, you can run into trouble and incur short-term cash flow issues. This may happen for example if you are incurring expenses and customers are late paying their invoices. It’s therefore soon becomes clear that you need to create a cash flow forecast.

Eight causes of poor cash flow and eight ways to improve your cash flow

• Poor financial planning – set up balance sheets, profit and loss statements, cash flow statements and forecasts
• Late paying or non-paying clients – negotiate early payment terms and check the client’s credit history
• Too much stock – keep this to what you will need with good inventory management
• Excessive overheads – keep these to a minimum and find cost savings wherever possible
• Profits are too low – make sure you are charging realistically and freshen up your marketing activities
• Over investing – evaluate if your business really needs new equipment etc. before purchasing
• High overheads – review and write down overhead costs such as rent, rates, utilities, Internet etc. and identify anything you can cut down on
• Product pricing – keep these competitive ensuring they are not too high or low

 Accounting software will ensure cash flow data is available at your fingertips

One of the ways to improve your cash flow is to have a Chart of Accounts. You will need to know and understand the monies that are going through your business. Irrespective of the size of your company, regular updates of the numbers including monies coming in and out, budgets and cash flow forecasts are essential. And this data should all be at your fingertips. Accounting software is the answer, as this provides the information in real time. Just in case the thought of accounting software appears daunting, team4 will be able to help and advise you on the most suitable system for your type of business.

Getting paid on time is essential so send invoices promptly

Being paid on time is key to your survival. Ensure invoices are sent out promptly with clear payment terms which could be immediate or a specific number of days. Add payment options to the invoice and offer a recurring payment option. Again, use accounting software that is the most suitable for your business.

Establish debt-chasing procedures

The longer a debt remains unpaid, the more difficult it is to collect. Whatever terms you give, for example 30 days, start chasing on day 31. Establish a structure, which may include follow-up phone calls, invoice reissuing or a stronger course of action if the debt remains unpaid.

How can team4 help you to have a positive cash flow?

Through understanding common cash flow problems, it may be possible to avoid them in the first place. A cash flow forecast gives you information about the future state of your business and this knowledge will help you to make important decisions before they become critical. Here at team4, we hope our top tips on ways to improve your cash flow are helpful. We understand that every business is unique and we are here to help manage your accounts to give your business every possible chance of having a positive cash flow. To find out more, call team4 on 01825 763378 or email info@team4bookkeeping.co.uk