Managing Cash Flow for Business Growth
Most businesses want to be successful and grow. While this is a great goal, growth brings its own challenges. It’s easy to focus on increasing sales turnover and not keep a close enough eye on costs and profits.
Speed of growth has an impact on resources. Growing too quickly can be dangerous as the business can overtrade which, simply put, means not having enough available cash to support increased sales. Having a more structured and planned approach is a safer, more sustainable way to grow.
Being on top of figures, with a good grasp of your gross profit margins and expenditure is essential. If you’re struggling for resources or don’t have the know-how, it’s a good idea to outsource. A good bookkeeper can easily process day to day transactions and your accountant can prepare monthly or quarterly management accounts. That way your figures are accurate, up to date and you’ll be making decisions based on facts, not guesswork. So, if you can see where costs are increasing, you can spend time working on reducing these.
Control Cash Flow
Growing businesses must tightly control cash flow. It’s the life-blood of any business and many fail because they simply run out of cash and can’t pay their bills. You might think if you’re making decent profits, your business is all right, but profit doesn’t take timing into account – when money comes in from customers and goes out to pay suppliers and staff.
To manage cash flow, you need to know how much you need to run your business and survive – what’s known as working capital. The more you grow, the more you’ll need. Prepare a cash flow forecast that predicts cash coming in and going out. You can do this yourself using software packages or your accountant can help. Once you have your forecast, don’t just put it away! Update it regularly. An accurate projection alerts you to potential trouble spots well in advance, giving you plenty of time to act. At its simplest, cash flow management means delaying outgoings for as long as possible and encouraging anyone who owes you money to pay it quickly.
Here’s our top tips for managing your cashflow for growth:
• Issue sales invoices more frequently and have terms and conditions to protect your business
• Watch overdue customer accounts and chase unpaid invoices early. If you want to avoid awkward conversations, you can also outsource this
• Do credit checks on all new customers, set a credit limit or request payments on account
• Watch stock levels to check cash isn’t all tied up in stock and keep stock levels to a minimum, paying particular attention to slow moving items which take up space too
• Have a cost reduction audit done to see where you can save money and negotiate better purchase prices and payment terms with suppliers
• Outsource to experts, instead of employing people which frees up your time, and reduces overheads
If you’d like help preparing a cash flow forecast, regular management accounts or advice, do get in touch.