We’re all familiar with the adage that ‘cash is king’, but what does it truly signify? Cash is the lifeblood of a business; without it, growth is stunted, and survival becomes a challenge.
Did you know that over 60% of businesses that fail is profitable but simply run out of cash? You might wonder how this happens. The answer is straightforward: poor management and uninformed decision-making.
Here are specific examples of factors that can lead to cash flow issues in a business:
- Delayed Invoicing and Debt Collection: Ensure timely invoicing and prompt collection of debts.
- Upfront Supplier Payments: Consider negotiating payment terms with suppliers.
- Stock Management: Avoid excessive stock purchases to prevent tying up cash.
- Overheads Optimization: Assess and enhance the performance of overheads like staff and marketing.
So, how can we sidestep these common pitfalls and enhance cash flow in our business? Here are eight practical tips:
- Plan and Monitor:
Utilize a 12-week rolling cash flow forecast. Dedicate 45 minutes every Monday morning to update and review it. This living document provides visibility into your business’s cash situation for the next 12 weeks, allowing you to proactively address potential issues.
- Efficient Stock Management:
Order only what you need to avoid tying up excess cash. Calculate lead times for stock delivery and order accordingly.
- Debtor Discipline:
Implement a robust invoicing process, clearly communicate credit terms, and ensure timely collection.
- Supplier Payment Terms:
Reevaluate and negotiate supplier payment terms to better align with your business profile.
- Invoice Financing:
Consider invoice financing for immediate cash flow but be mindful of associated costs.
- Reinvest Profits:
During the early stages, focus on business growth by minimizing personal withdrawals.
- Explore Investment Opportunities:
If faced with significant growth prospects, consider seeking investors to provide the necessary capital in exchange for equity.
- Borrow Wisely:
Utilize asset financing, overdrafts, or business loans judiciously, ensuring a clear plan for repayment.
In conclusion, at FinDep, we recognize the importance of swift access to funding for business owners. By implementing these eight tips, along with our other cash management strategies, you’ll regain complete financial control over your business. This not only reduces stress but also frees up capital for further growth.