How to keep the cash flowing in your business

MANAGING money is essential to keep your business ticking over. One expert shares his tips to make sure you never run out.

Man Hands full of money receiving a Coins Rain

FOR many small businesses, growth is the barometer for success. But expansion can present challenges and one of the critical issues in any company when it is experiencing a healthy level of growth is cash flow.

You can have the most amazing service or product in the world, but if you run out of cash, it won’t matter.

DVT Group founder and author of Life After Business Antony De Vries takes a look at why cash flow is so important and why growth often contributes to a lack of funds. Here he offers up some tips on how to monitor your cash flow over time and how to improve it.

Cash flow basically means, ‘do you have enough cash to pay all your expenses?’ Have a good sense of when bills are due and take into account any discounts for paying bills early as well as penalties for paying late. Create a schedule of recurring expenses such as payroll, rent, utilities, etc. This information can identify which bills can be paid at late dates, and which must be paid immediately. Manage your payments carefully and don’t turn a blind eye to concerns.

The importance of planning. I would suggest that a cash flow projection be for at least 12 months and preferably 24 months. That way you can see the shortfall on the horizon and have sufficient time to explore avenues to cover that.

Planning is crucial for small businesses to ensure you never run out of cash.

Be realistic with the cash flow forecast. Don’t over-estimate income and under-estimate expenses and definitely don’t assume that all debtors pay on time. Invoicing on time is paramount in keeping cash flow buoyant. Make sure that your cash flow doesn’t depend on certain invoices being paid on time. If your cash flow is dependant on a specific invoice being paid on time, make sure to communicate with the company at least four weeks before it’s due.

Chase invoices the minute they’re late. It may sound harsh, but the minute that an invoice is late, call the company and start pressuring them. If they think they can get away with late payment, then they’ll put you behind all the other customers they have to pay.

A lot of businesses’ cash flow is tied up in stock. Keep stock levels at a minimum to meet the ongoing requirements and keep the cash in the business. Analyse inventory turnover to determine which items are selling and which are duds that are soaking up your working capital. Try to keep inventory levels as lean as possible, so that your working capital isn’t tied-up unproductively and unprofitably.

Update your cash flow regularly. Make it a living document that is tailored to work with your business. In order to keep track of your cash flow, you will need a simple spread sheet tool such as Excel. You need to review how much money will be coming into the business as well as how much money will be going out. If you are not sure how to do this you should have a word with your accountant who should be able to supply you with a template for easy use.

Antony De Vries is the founding partner of the DVT Group and author of Life After Business