No matter how fantastic your product or service, poor cash flow management can be the death of a small business.
Owner-managed businesses are caught between both customers and suppliers who have the power to dictate payment terms. Without proper
systems owner-managers can find themselves strapped for cash despite making sales.
Following these five simple steps could make the difference between growing your business and going out of business:
1. Forecast your cash flow
Trying to run your business without a clear and detailed cash flow forecast is a bit like driving a car in the rain without windscreen wipers; you can do it, but you’ll have no idea where you’re going! An annual cash flow forecast at monthly intervals (or even weekly if cash is really tight) is an invaluable business tool and will keep you ahead of the game and on top of your cash flow.
2. Understand your numbers
Make sure your accounting system produces regular information on overdue amounts and that you have a system for following up as soon as the debt is due. Calculate how many days sales are tied up in Debtors (called Debtor days) by taking the latest month’s sales (+VAT if applicable) and comparing it to debtors; if
there are some debtors left over go back another month and so on. 30-45 is alright if you allow credit. Over 60 is too high.
3. Don't just expect prompt payments
Large companies have recently extended payment terms up to 120 days for some suppliers, with 90 days not being uncommon. Selling to the
large companies may seem like a dream come true but it is not right for every business and you need to ensure that you can afford to finance your customer's business to that extent.
4. Utilise technology
New technology is constantly being developed which changes the way we live, so why not use it
to help track and handle your finances. Software is now available which assists you in taking control of your cash through automatic debtor chasing and warnings about the credit risk of your customers.
5. Consider invoice discounting
There are a number of firms that offer invoice discounting for
small businesses to allow them to free up working capital. They will provide you with most of the cash up front and give you the remaining amount (less interest and fees) once your customer has paid.
My offer to you
An annual cash flow forecast is an essential business tool; for a
limited time I will prepare an annual profit and loss and cash flow forecast for you for only £197+VAT (usually £497). This comes with monthly balance sheets to monitor your working capital and as a free bonus with this offer a ‘what if’ sensitivity analysis with up to four variables.
I have limited capacity to complete these forecasts and so will do them on a first-come-first
served basis. You can book yours by emailing me or booking a call with me at www.calendly.com/noelguilford (when the call is booked your slot is secure). I will send you a form to complete with your opening balance sheet (if applicable), sales forecasts and assumptions.
Do it now so you don’t miss out!
Noel Guilford