How much cash you have is an inaccurate representation of how your business is performing. That said, effective cash management is fundamental to the success of any business. Cash flow pressures are faced for many reasons, the most common are:

• Poor trading
• Lack of investment for the size and type of business
• Poor use of funding options, in particular spending short-term funds on long-term assets
• Poor credit control
• Bad debts
• Changes to funding arrangements
• Over-stocking

By improving your cash management almost all of these causes can be reduced or removed. Here are a number of ways you can improve:  

1. How much money does your business need?

To be able to plan and manage your cash, you need to know what your cash requirements actually are and surprisingly so many businesses do not do this; you need to create a financial plan with profitability, balance sheet and required cash flow. 

2. How can I be more profitable?

Make sure you really understand your business and its profitability. What sells, what doesn’t. What margins are being made by product, stock item, division, employee, salesman? Good management accounts broken down and compared to targets and previous periods are essential to get this understanding. Once you can see, you can take steps to improve profitability. At the end, if you are profitable then you are billing more than you are paying and eventually, subject to cash flows, this turns into cash.

3. Get the cash into your business as quickly as possible

Credit control is chasing up outstanding debts and when it is done badly, it can severely damage the financial position of your business. You should have a credit control plan in place which involves billing customers promptly, setting the credit limits and payment period on your terms and not working with debtors who will damage your financial health.  

4. Speed up the internal processes in your business

Time is money. If work is not passing through each internal stage of your business as quickly as it could, the extra time taken is costing you money. By speeding up the processes in your business, you will be able to invoice and complete orders more efficiently and therefore collect monies quicker, improving your cash flow position.

5. Spend the right money on the right items

Busy and profitable businesses still run out of cash and this happens when they haven’t established their needs properly. This is why identifying what you need to run your business and what you don’t is so important, and helps you produce effective cash-flow forecasts. Each item within your business should have the right financial solution and funding option. Also, do not tie up liquid funds in long-term assets.

6. Watch your benefits

If you cannot afford your bonus, do not give yourself the bonus. Personal financial demands should never have a detrimental effect on your business’s financial health. Remember: When planning for your remuneration and the business’s spending you need to take into account tax implications.

7. Get the right staff and right number

Apart from the cost of products being bought, staff are the biggest cost to a business. They do not give you credit like normal suppliers and the tax deducted is normally paid within 19 days of paying the staff. It is very easy to recruit staff in the good times and then keep them when times are bad. Make sure that this cost is properly managed, trained, supervised and monitored. Staff appraisals are essential as well as KPIS to monitor how well they are doing against set targets.

8. Plan for what can’t be planned for. Have a buffer.

Some things are out of your control and you can’t prevent them, no matter how well you manage your business. You still need to be prepared for them. When times are good, ensure that you do not strip the business of cash, keep some in reserve for the bad times that might come. By understanding your circumstance and taking responsibility for it, with the right attitude you can significantly improve your cash flow position.   The S4B Team We significantly improve the cash flow position of all of our clients and we guarantee that we can do the same for you. Find out more by getting in touch. Send our team an email at [email protected] or call 01628 623444 to see how we can help you.