8 Tips to Manage your Cashflow

Business April 10th, 2017
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8 Tips to Manage your Cash flow

It is a popular notion that 8 of 10 SMEs fail within the first year or two. Surprisingly, however, the reasons behind the success or a failure of a company are common and repetitive. To equip you in building a sustainable business, here are some tips to help you manage your monies better.

Keep your accounting simple and up to date

Let’s begin with this question: How often do you track your numbers?

Keeping your accounting books up to date is essential. Many SMEs especially those with small teams tend to focus on completing the project and in the process, fail to maintain their financial records accurately. If you are not a number’s person you might want to hire a professional accountant or use an easy to use accounting software.

In addition to tracking your overall performance, this can give you a quick overview of your cash position and enable you to plan your projects efficiently. Many small business owners hit a road block when they pitch for a large project and win it. The lack of cash not only affects their credibility within the market but also miss out on a big growth opportunity. Don’t let that happen to your business.

Speed up recovery of receivables

Companies that offer services or products have several pre-project expenses. Whether it is buying images or placing an order for supplies, access to cash is essential.

It is important to bill early and collect quickly to guard against late payments. For big orders, you may want to consider progressive invoicing while you manufacture the goods or deliver the service. Alternatively, you might want to get your customer to pay a deposit before you begin a project.

Take advantage of technology

Make it as easy as possible for your customers to pay you. For example, you can add a payment link on your invoice so that your customers can pay using a credit card or other payment services. This is particularly relevant for companies who are in supply chain and e-commerce business. However, it should not stop traditional businesses like construction, manufacturing or professional services from embracing technology.

For example: If you are in the construction business, you could have a walk through video of the site to show your client and get payment on certain stages which might not need a physical examination.

Build your creditworthiness

As an SME owner, you need to look at your company’s credit health as well as your own.

If you are looking to finance your business through loans or other financing options, your company’s financial health plays an important role. Ensuring that you pay your bills on time will help you in the long run.

It is also important to keep your personal finances separate from that of your company’s. Your personal financial health reflects how you, as an SME owner would manage the company’s expenses.

Liquidate cash tied up with assets
Do you have equipment you no longer use or inventory that’s becoming obsolete? Consider selling or leasing them to generate funds. This can offset some of your immediate cash needs or address your need for space management. If you need to buy new equipment for a project, consider renting them. That way, you can control your expenses significantly.

Build a cash reserve

If your business does not have a cash reserve, it is time to put this in action ASAP. A healthy reserve will provide you the cushion you need for the “rainy day” which makes an appearance often. Irrespective of the amounts you set aside, your cash pools give you the cushion you need and present you in a better light when approaching traditional financial providers for a business loan.

In the long run, this is a sure way to set your business on the path to success.

Finance purchase orders

This is relevant for companies which deal with big volumes of inventory or in the supply chain business.

With a purchase order in hand, you can approach financing companies to pay your vendors so that you can get your supplies on time to complete your orders or projects. This way, you can take on big projects to build your business up.

Sell invoices

Popularly known as invoice financing or factoring, this can help you convert your invoices into assets with which you can avail funding with short tenors ranging from 15 – 90 days. In simpler terms this means, you can get your payment much earlier rather than waiting for your client to pay.

When you approach a funding provider with an asset-backed application, you can skip some of the hurdles placed on other financial products such as unsecured loans. That way you have access to funds much faster.

As the old adage goes – cash is king. We hope these tips act as a reminder to help you achieve a consistent working capital and place your company on a steady path towards success.

 

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