Blog

31 October 2013

7 ways to manage your cash flow

1/3 start-ups fails in the first 3 years due to lack of funding or poor handling of money. Here are some tips to help you manage your cash flow.

Cash flow problems can be fatal for small businesses, with one in three start-ups failing in their first three years due to poor financial management or lack of business funding.

Here are our top tips for managing your cash flow:

1.    Maintain a cash flow forecast

Preparing and maintaining a cash flow forecast can help businesses plan for the future so they can make sure they have enough funds to survive. A cash flow forecast is essentially a spreadsheet which allows you to project your expected income and outgoings. It allows you to anticipate potential cash flow problems so you can take steps to manage the situation.

2.    Make it clear to customers when you want to be paid

It is difficult to anticipate when you will be paid if you don’t set out clear terms for your customers. By letting them know when their payment is due, it will be easier for you to predict your income, although there will always be people who do not pay on time. Asking clients to pay within 30 days of receiving your invoice makes good business sense, unless you have agreed different terms before undertaking the work.

3.    Don’t waste time before sending out invoices

One way to try and reduce the time you have to wait to be paid is to make sure you send out all your invoices promptly. As small businesses and start-up businesses are particularly vulnerable to cash flow problems, it is particularly important that you send out invoices as soon as the work has been completed. Sending invoices by email means the client receives them straight away and you have a record of it being sent. It also saves on printing and postage costs and is a step towards creating a green office environment.

4.    Make it easy for people to pay you

If possible, give customers a range of ways they can pay you so they can choose a method which is convenient for them. Consider online payment options like PayPal rather than accepting cheques, which take much longer to clear.

5.    Consider offering fixed rate packages

Depending on your business, it may be relevant to offer your clients deals, where they pay you a fixed amount each month for your services. This can make your income more predictable and give you more peace of mind. Developing packages which are billed in advance rather than in arrears is also a good way to avoid cash flow problems.

6.    Use accounting software

Using internet-based accounting software is ideal for remote working as it can help you keep track of your business’s cash flow, even when you’re away from the office. Many systems are available free of charge. By regularly monitoring your financial situation it will make it easier for you to come up with a solution if a problem arises, before it escalates into a crisis.

7.    Keep in close contact with your bank

If you anticipate a problem with your cash flow, don’t suffer in silence. Talk to your bank as they may be able to help by extending your overdraft or giving you credit. If there are any unforeseen outgoings or a major client has not paid on time, let your bank know so there are no shocks further down the line.

 

D2 Interactive