January and February are well known times for cash to be tight. Business owners can always try to improve their cash flow by making some minor adjustments in their business practices. Poor cash flow is a source of worry, as you wonder about how you can meet your financial obligations. Even though you may be a profitable business, poor cash flow can bring it to its knees. There are a few ideas you can implement to ultimately change your cash flow:
Reduce the time it takes to deliver the product or service:
- Set standard turnaround times
- Finish the job and invoice it immediately
Reduce the time it takes for people to pay you
- Get tough – you are not a bank or charity!
- Explain your terms of trade up front
- Give an estimate of the price before you begin
- Invoice in advance – 25%, 50% or 100% upfront
- Have a strict debtor system and a debtor champion to follow up late payers
Do a cash flow forecast
- Estimate the peaks and troughs of your business and set aside cash in the good times to support you when times are slower. If you are prepared, you can ride out the slumps.
- Estimate any projected expansion costs and make sure you have the cash flow to cover it.
- Your forecast can be daily or monthly.
Review your finances
- Renegotiate bank facilities to reduce charges or extend repayment periods
- Use a Credit Card for payments
- Improve service standards to retain your current clients
- Improve marketing to increase the number of leads or enquiries
- Have a sales process to improve your conversion rate
- Increase the number of times your client transacts with you per year
- Increase the average sale.
There are two questions that you can ask yourself when trying to understanding your cash flow:
- What is my cash balance right now?
- What do I expect my cash balance to be in the next six months?
It is important to keep track of your cash flow results every month to determine if your management is creating the type of cash flow your business needs. Doing this will help you to succeed at creating cash flow projections as you make business decisions about expanding your business and taking care of existing bills. If you'd like to discuss creating a cashflow for your business, contact PJT today.