Cash flow is the life line of any small business. Limited cash flow can cripple a small business, yet many businesses don’t actively look at strategies to manage cash flow. Follow these simple tips to ensure your business cash flow remains healthy:
1. Actively manage your debtors
Start by implementing a more effective credit policy to ensure overdue accounts are followed up and paid. For example, what action do you take when invoices have not been paid on time?
This can be as as simple as automating an email sequence to ensure your overdue accounts are followed up. Or following up with a phone call asking for a date as to when they will be paid. Text messages are also useful tool to follow up unpaid accounts with a link to the invoice. You can also offer incentives for quick payments. if you'd prefer not to use your own mobile number for this, try websites like SMSbroacast where you have the option to send reminder messages using your company name.
Once you work out your ideal payment schedule and process then stick to it. There is no way that your cash flow position will improve if you allow creditors to delay payments.
Also, consider negotiating longer payment terms with your suppliers. If you can balance your outgoings from your customers before you pay your suppliers, you will have zero out of pocket.
2. Consider leasing or renting equipment instead of buying
The most significant benefit to leasing or renting equipment is that you pay in small increments, which improves your cash flow position. The added benefit is that leasing costs sit on the other side of the ledger and are considered a business expense and can therefore be written off when they are used for business purposes.
Businesses can save a significant amount of expenditure by leasing office equipment, technology and other assets such as cars. By eliminating the cash payment through leasing, businesses can continue to grow and develop without putting them in the red. Learn more about leasing and equipment rental here.
3. Re-negotiate property and long term leases
If you rent your office or retail space, your lease is an important contract and one that should be regularly reviewed. The current commercial rental environment means tenants are in a good position to negotiate discounted or rent free periods, or contribute to fit-outs.
Other long term contracts may include software contracts, phone companies, IT , utilities and with increased competition in the market, many of these companies are offering rebates and plan changes to entice you to stay with them. For example, Telstra has recently ramped up its efforts to retain customers, establishing a ‘customer value creation’ team to find ways to better tailor product and price “offers”. We were recently offered a significant re-work of our data and landline package with Telstra as a result of a call to the retention team.
It is definitely worth asking the question as long as you start with the premise that everything is negotiable.
Flexibility in any business is vital to its ongoing success, which is why keeping a healthy cash flow is important. Managing your cash flow will be an ongoing process but once you set up the structures to do this and regular review your cash flow position, you will have a better understanding as to how your business is performing. And remember, that you don't have to do this on your own - seeking advice from a professional such as an accountant is a good idea. They can assess your situation and provide targeted solutions accordingly. And the final word goes to Richard Branson “Never take your eyes off the cash flow because it’s the lifeblood of business.” (Richard Branson).