Go with the flow: How to manage cash flow so your business stays afloat

By Antonia Chitty
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Cash flow is key in any business, even more so if you’re just starting out. Here are 5 tips to help you.

Money in your pocket is worth more than a promise. That makes perfect sense when you’re thinking about your personal cash, and it applies to your business too. ‘Turnover is vanity, profit is sanity, cash is king’ is another way to say it. However hard you work, however many invoices you send out, your business isn’t succeeding until the customer pays up. Having enough cash in the business is critical for both your sanity and your success. Not sure what cash flow is and how it differs from profit?

There’s a handy image here that explains it all. If your cash flow dries up and you can’t pay your creditors, your business could go under. Read on for advice to help your business cash flow:

Systems for success

Have you got a good way to stay on top of invoicing to keep your business afloat? Sending out bills as quickly as you can means you get paid as soon as possible. If you love your work but hate the finance, motivate yourself by remembering that it’s payment that allows you to do the work you love. A system for invoicing will make your life easier: you could set up a simple database of client details in Excel or use an accounts programme like Sage, Quickbooks or Kashflow.

Really hate invoicing? Find a bookkeeper and liaise with them weekly to send out invoices and chase up payments. The money you pay the bookkeeper will be well worth it when they ensure your business bills get paid.

Timely terms

How long does it take a client to pay you? If your business income is more of a trickle than a flow, then perhaps you need to tighten your terms. Do you ask for your invoices to be paid on receipt of invoice, within 14 days or 30 days? If you have finished a job it is reasonable to ask for payment on receipt, for example. If you will incur upfront costs on a project, or are working for someone new, ask for a deposit.

Get wised up about what to do with those who delay payment. Chase debts firmly. Ensure that one person is responsible for this, and that they do it every week. Have a clear set of actions to follow from a first reminder to sending in debt collectors if necessary. There’s a prompt payment code that you can refer to which allows you to charge interest on late payments. This can focus the minds of late payers. By setting up the steps in advance it is easier to put them into practice when you need. One too many bad debts can cause your business to flounder or even sink.

When to pay who

The bigger your business grows, the more bills you’ll need to pay. The people who work for you are important, so why not use a site like coschedule.com/ to help you manage workflow and set yourself reminders. Check each invoice for payment terms and pay on the last day that the money will reach the payee in time: with modern banking money transfers are almost instant in many cases.

This means that your money stays in your bank account for as long as possible, helping you to cover your costs while waiting for clients to pay you.

Cash in

Nowadays it’s easy to ensure that your business gets the benefit of any payment almost immediately. Ask for payments by bank transfer or BACS and the money will arrive in your account super-fast without you having to do anything other than note the invoice as paid. If you do get paid by cash or cheque, deposit it straight away. Cheques in your wallet don’t benefit the business until they actually reach the bank.

Clearing times are getting faster, and paying cheques in right away cuts the risk of you losing an important payment. This all helps ensure that there is as much money as possible IN your business account, rather than sitting on your desk!

Money, money, money

If you don’t have one already, look for an interest-paying business deposit account for your business reserve, and sweep ‘spare’ money into this account regularly. Even though interest rates are low, a few per cent interest is better than nothing. By doing this you will get even more benefit from invoicing promptly and paying in cheques as soon as you get them. Check what your bank charges, and shop around for a better deal.

You could save every month if you switch, or you may find your existing bank improves their offer when you explain to them you want to move to cut costs.

 

Top Takeaway

Pick some of these tips to follow and you will find it easier to have a healthy flow of money coming in and out of your business.  If you only do one thing, set up a great invoicing system, ideally one which sends automatic reminders. You will soon find that you are on the way to having a business that is buoyant.

 

Author bio: Antonia Chitty is an award winning entrepreneur and author of books on business and enterprise. She blogs at www.familyfriendlyworking.co.uk Her latest books include Blogging: The Essential Guide (Need2Know) and Making Money Online (Hale Books).

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