Cash is the blood running through your business. Without positive cash flow even a highly profitable company will be dead within a couple of months, which is why you – as a business owner, large or small – must take consistent action to ensure cash is being pumped to the areas of your company that need it the most.
With this in mind, we’ve put together a short guide on the five top ways your company can improve cash flow today. Some will seem obvious, others not so. Either way, if you begin implementing these five points as soon as possible, we promise you’ll see the difference in your company by next quarter, no doubt sooner.
1) Always Collect Debts Promptly
Nothing in business will affect your cash flow more than your ability to collect debts promptly. Contracts confirming the work has taken place mean nothing to your bank – all they’re interested in is prompt payment, a common interest you must share.
To avoid this trap it’s absolutely crucial that you let your customers know your payment terms ahead of agreeing to work with you, or purchase products from you. If you work in the service industry you must, without exception, create a timesheet for each customer you work with and bill for all completed work at the end of an agreed upon period.
If a customer doesn’t manage to pay you on time despite knowing your payment terms, it’s courteous to give them the benefit of the doubt the first time they fail to pay, sending them a brief, polite email reminding them of your invoice.
If you’ve still not heard from them after a couple of days it’s up to you to keep contacting them until they pay up; making it crystal-clear you feel disrespected by their refusal to pay, and letting them know that you’re happy to hand their account over to a debt collection agency should you not receive full payment within a certain number of days.
2) Make it Easier for Your Customers to Pay You
Such a simple idea, but such a powerful one all the same. This is your chance to get out of your own way and allow your customers to pay you in whatever way they want, so long as you receive full payment within an agreed period.
If you work in the service industry, put in place a direct debit system for collecting payments from customers who would like to pay you each month without having to think about it. But don’t make this the only payment system you put in place. Also ensure you set up credit card facilities to allow customers to send you immediate payment should they wish to, and give out a postal address to which they may send cheques.
3) Create Accurate Cash Flow Projections
Creating accurate cash flow projections is a critical part of ensuring your business will still be here a year from now, providing you with the visibility you need to see out ahead of you with a fairly accurate view of what your next quarter will look like.
When piecing together a cash flow projection for the first time you must remember one simple rule; the next few months will almost always look very similar to the last few months. As you take the time to look through your revenues and expenses for the last quarter, how do these figures strike you? If they’re fairly consistent and unsurprising, chances are you’ll be able to create a fairly accurate cash flow projection based off of them.
Keep in mind that you must take note of any changes you know are likely to take place in the coming months, such as the release of a new product, or a sale you’re planning on having. The likely impact of these must be worked into your projections – making sure to put a conservative edge on each.
To make budgeting even easier, consider using Xero accounting software. Alternatively, contact us at Tax Agility to find out how we can build a bespoke cash flow model for your business.
4) Review Your Overheads
When you take the time to review your overheads you’ll not only find ways in which you can save money right here, right now; you’ll also give yourself the satisfaction of knowing that you won’t be paying over the odds going forward.
These overheads will include both general expenses and utility expenses. General expenses you should review include office stationery, your paper usage (going paperless is a great way to save), and expense accounts; specifically focusing on the necessity of these costs.
When reviewing your utility expenses if you notice you could save on your electricity bill, for example, by switching providers, first contact your current electric company asking them to match the price given by their competitor. If they don’t agree; switch – ensuring you continue to review your overheads on a regular basis so costs don’t creep back up.
5) Use Exceptional Online Accounting Software
Online accounting software allows you to have instant access to the information you need, when you need it. Xero accounting software, for instance, can assist you with all your online accounting and invoicing needs, as well as handling payroll, expense claims, inventory, and even fixed asset depreciation values, taking the hassle out of accurate reporting.
As Xero is a cloud-based accounting software, you can access your accounts from anywhere in the world, safe in the knowledge that your data is considerably safer from loss or theft than it ever would have been stored on your office computer.
Tax Agility are Xero Gold Partners with extensive experience working with the software. Not only can we show you how to use Xero, we can also fully train your staff and offer constant support, so that your business can continue to capitalise on your new and improved accounting system.
Personalised Advice to Improve Company Cash Flow
To speak with a professional regarding specific ways you can improve your company cash flow, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.