Flowing in the right direction
As with all difficult situations the one thing to avoid is failing to tackle the problem. It’s often just a matter of simple discipline to get and keep things on track. Managing a positive flow of cash can seem complicated and hard to achieve, so here are some simple steps for your company:
Invoicing system
Be diligent about enforcing the rules for when payment should be made. It still surprises us how many business do not control charging customers and progressing payment. There’s the embarrassment of asking for money even though it’s theirs! A good customer will not only appreciate the goods or services provided; they will also value your timely and accurate invoices so that they are able to manage their cash commitments too. An accurate invoicing system is a must for every company and this, even more than what you have done for your customers, is what drives the inflow of cash.
The culture of paying on 60 days has to be vigorously fought, even at risk of losing late paying customers. Remember its your moeny they’re keeping.
Purchasing
It’s important to steer clear of unnecessary spending. This means there should not be a surplus of anything that is not needed for the company to operate, such as supplies, as this is simply a waste of money and creates a severe negative cash flow as you cannot turn these stocks into sales.
Stock control
Has your business got an excess of raw materials, finished goods, consumables or stationery, just in-case you might need it? Why? In our ‘next day, just-in-time’ world why do we buy surplus of anything ahead of when we need it?
What better way to manage the out flow of funds from your business than not spending the money in the first place? With a little effort and planning you can reduce all stocks in your business and you’ll be surprised but you could even improve your customer service too.
Cash flow forecast
One of the most powerful tools for managing business finance is a cash flow forecast. It is a simple plan showing what cash is expected in and out, and when. Add to this the amount of cash you start with and you instantly know if and when the business might run out of money. Knowing this makes it easier to decide what action to take, for example, should the business delay an expenditure or ask for an overdraft (short term) or loan (long term) to cover short falls? Alternatively if there is a cash surplus how should that be invested?
Finance management
Armed with a cash flow forecast it’s much easier to plan well before the cash is needed. Dealing with finance management in good time gives you the opportunity to explore different funding options and the chance to use a number of different providers to reduce your risks. Leave this too late at your peril and the profit of others!
Customer value
We talk a lot about efficiencies, but what it really means is doing more with less, which usually impacts directly and proportionately on how much cash is going out of the business. Do you need all those administrative staff or could computer automation and a better way of working yield cost benefits? Does that up market company car add more value or just more cost to what you offer your customers? Every business should constantly look at ways of being better in all that they do.
Summary
Creating a stable cash flow for your company now will affect your business future for many years to come. Having a secure and positive cash flow is vital, especially for the relatively small amount of time and money that you have to invest to achieve it. Be diligent and make sure you are on top of the company’s finances; there are significant rewards for your company if the right steps to financial freedom are taken.
For information about how we can help you with managing your cash flow, stock levels or efficiencies, contact us on info@mgarnerconsulting.co.uk or ring us on 0800 242 5287.