How to master cash flow and keep your business healthy

   

It has been a challenging time for all businesses, regardless of size, and one that will have a lasting impact on the way that businesses structure and manage their operations. The recession has not only impacted revenues, margins and sales leads, but it has also highlighted areas of weakness within businesses, where more effective processes need to be put in place.

One of the key things many small businesses have learnt from the recession is the importance of a healthy cash flow. Cash flow put simply is the movement of money within a business but this seemingly straight forward concept can have detrimental effects if badly managed, with a surprisingly large number of business failures caused solely by poor cash flow management.

Cash flow forecasting software is an important business tool that can not only show payment patterns and forecast the year ahead but it can also highlight reoccurring late payments. It was recently reported, by the Department for Business, Innovation and Skills, that more than 4,000 business failures in 2008 alone were caused by late payments and over half of the small businesses polled by Sage, in its Omnibus survey, reported that they had been impacted by late payments over the last twelve months.

There are, however a number of steps that small businesses can take to ensure they are in the best possible position when it comes to cash flow, including:

Learn about your customer’s habits

Every business sets a date each month for when they pay their invoices. Make a note of when these are for your customers. This will allow you to plan when your firm should pay your suppliers.

Make sure you are up to-date with your invoices

Invoice all your customers promptly and keep track on when they pay. If you are working on a longer contract, agree monthly stage payments or make sure you receive an up-front deposit, to pay for materials, etc.

Set-up an online automated contingency plan

This will help you actively manage your cash flow. It is critical that start-ups remain aware of how much money they are owed and when payments are due, so that late payments do not occur in the first instance. However, if they do occur, good management can ensure the late payment does not have a damaging effect on your overall cash flow. These are all aspects that business accounting software can help you get to grips with.

If small businesses put into practice the correct processes they will be able to manage their financial planning effectively, forecast the year ahead and identify any potential cash flow issues early enough so that action can be taken to avoid any downturns or dips expected within the firm. More effective cash flow management will help stabilise the business as well as ensure emerges from the recession in a stronger position and cash positive.

Further cash flow resources

For more top tips on cash flow management, you might be interested in this guide, written by Sage: Moving forward… Guide to Cash Flow.

Given the importance of cash flow management to the survival of small companies, we have a wealth of further articles which may be of interest to our readers. Here is a selection of some of the most popular articles on the site:

• 5 ways to instantly improve your cash flow
• Top 10 tips to improve your small business cash flow - Deloitte
• Top tips to manage bad debts and improve cash flow

• Free Accounts Software for small businesses - Download TAS Basics Now!
• Starting Up? Get 18 months free banking, and much more from Lloyds TSB!
• Home Business Insurance - Save money with Direct Line for Business. We guarantee to beat any quote for the same cover. Immediate quote available.