Every successful business needs good cashflow. It is an essential component that without it, a business will struggle to stay afloat. Whether your business’ cashflow is positive or negative can be a good indication of how your business is currently performing. If your cashflow is positive, then you are gaining more money than losing, if your cashflow is negative, then you are spending a lot more than you are making, which, more often than not, indicates a problem.
As the new financial year looms, it offers the perfect time to peer into how your cashflow is managed. You may find that there are some changes you can make to improve your cashflow. To help you out, we are providing three tips and insights into cashflow you may have not known before.
Poor budgeting and KPIS
Poor budgeting can cause spiralling negative effects if not handled correctly. When you budget for your personal income you always ensure that you are being realistic and accurate with your cashflow judgments, right? It is exactly the same with any business. By ensuring that you are planning, predicting and setting targets you will have a clearer picture on the direction you need to head in order to achieve the cashflow you want. It is important to be as accurate as possible in your predictions, so, if you are in an industry with peaks and troughs, ensure that you account for these trends. Say you are in retail for example, then your business should ensure that you budget in for the Christmas peaks and mid-week troughs.
By creating accurate forecasts and goals you will have a point to strive towards, helping turn your cashflow into something more predictable. It is important to make sure your budgeting is as realistic as possible, however, if you are in doubt always lean towards a worsened case scenario over an overly positive scenario. For example, underestimate your income while overestimating your expenses. While you should still be striving for realistic figures, this can help adjust your budget in a realistic direction. If you are not sure how to accurately budget for your business, you should speak to your accountant for their advice and guidance.
2. Lack of good bookkeeping
Bookkeeping is a fundamental part of any business. If bookkeeping has not been regularly kept up to date your cashflow numbers could be well behind. It is incredibly important for any business to ensure that their books are up to date so you can see what income is coming in and what expenses are due to go out.
It is essential that you schedule a regular time to complete your business’s bookkeeping. By completing this regularly it will make it far easier to know how your cashflow is tracking. If you are struggling with the bookkeeping and are falling behind, you could outsource the task. By outsourcing your bookkeeping, you will free up time for yourself to continue working on your business and, you will receive an expert service from professional bookkeepers.
3. Late customer payments and bad debts
Customers delaying payment to you or not paying at all can really hurt your cashflow.
The problem with delayed payments is that you often need to pay your own suppliers and staff many weeks before your customer pays you. If cashflow is tight, you may struggle to fund the difference during this time while waiting for payment.
Bad debts are those which, despite your best efforts, are unable to be collected. Before you treat a debt as bad, you should speak to a professional collection agency about engaging them to collect these debts on your behalf. Collection agencies take a % on success of their collections, but it’s better to receive part payment than nothing at all. The collection fee is of course tax deductible to your business.
One method to fight against both bad debt and delayed payments is to request part or full upfront payments in your invoicing process. Not only could this help ease the burden of any bad debt it could also prevent any post-completion costing arguments. Reducing your payment terms could also help reduce delayed payments. If you have a payment period of say 30 days, consider lowering it if you find that a lot of clients delay their payments for the full time. You can also back this up with timely invoicing. By ensuring that your invoices are sent in a timely manner you could see some payments made earlier.
Understanding your business’ cashflow can go a long way to the survival of your business. By building goals and ensuring you have up to date data you will be able to manage your cashflow better, be prepared for cash shortfalls and be more prepared for the unexpected. If you need further advice on managing your cashflow talk to Link Advisors today.