Cash is King, you hear it all the time, and quite rightly so, we’re all in business to make money. One of the key factors in business start-up failures is cash, and we’re not necessarily talking solely about sales here, but cash flow; having the money at the right time to pay the bills when your suppliers demand it. Even profitable and busy businesses can find themselves in trouble with cash flow problems. However, with a few simple tricks, you can control your cash flow, making it easier to manage your finances and build a better business.
1. Forecasting
Cash flow; making sure you don’t spend more than you have coming in? Not quite, it’s a little more complex and timing has a lot to do with maintaining a positive cash flow. You could have a stack of orders with outstanding payment but if you don’t have the immediate cash to continue making and selling your product or service, or if you are unable to pay your bills when needed, your business will quickly fall flat.
When starting a business you can count yourself very lucky if you have paying customers from day one, for most, it could be weeks or even months before you start generating income. With this in mind, it’s necessary to understand how much capital you are likely to need to set up and when you are going to run out so you can react and plan accordingly.
Creating a cash flow forecast can be extremely helpful in understanding where your finances are likely to be at any given period. It can be difficult to predict initially, running sales forecasting in your business will allow you to develop a good understanding of how sales will stack up month to month. Make sure to forecast by month, category and what revenue you anticipate based on your firm’s sales history.
2. Keeping Costs Down
It seems obvious but keeping your costs down is a necessary action to take, even more so in the early stages of your business. Although your intentions might seem right to spend hundreds on a fancy press ad, there are more cost-effective ways to advertise and create a buzz about your new business. Social media is a great example of this, you can set small advertising budgets that are targeted to the right people and can monitor it much more effectively.
Office space is another way of saving money; do you really need a dedicated office space right now? Perhaps, for business meetings and such like, but how about working from home and using a local coffee shop in the early stages or hiring meeting rooms only when needed?
Another way to effectively manage your cash flow and keep costs down is to only pay when you have to. By no means does this mean pay late but if a bill is due in 30 days, why pay on day 6? Keeping to a schedule keeps your suppliers happy and can help you manage and forecast your businesses cash flow easier.
3. Payment Up Front
You can reward customers who pay early. Consider offering a discount of 5% or 10% to customers that pay in a short period of time or to a customer who pays cash. It can also be good practice to introduce new initiatives, such as asking customers to pay a percentage up front or ideally, pay 100% of the bill up front, depending on the type of product or service you provide.
4. Invoice Quickly
Issue your invoices quickly and if possible by email. Email is quicker, will arrive immediately, saves on paper and printing costs and you will also have a record of it being sent. Seems like a no brainer, especially in the early stages of your start-up.
Also, consider making sure your invoice looks good. This may seem trivial but making sure it’s easy to read, accurate and clear will eliminate any misunderstandings and could result in quicker payment.
5. Clear Payment Problems
Payment terms are there for you as much as they are for your customers. If you don’t know what your payment terms are then how are you to know when you’re to be paid? And in turn, how can you manage your cash flow effectively?
Set out clear payment terms from the beginning and put solid procedures in place to chase late payments and add interest if necessary. Keep an eye on our newsletters and news posts for other useful credit control tips.
For Start Ups Think Shapcotts
If you are thinking of starting a new business it is important to take the right professional advice in the planning stages to help you define your future plans. This can help to avoid potentially costly mistakes being made.
Why not take advantage of our free initial consultation? We offer free, no obligation meetings, lasting up to 2 hours to anyone who is in the process of starting a new business. Just contact us for more information.
February 6th, 2014
