Top 3 Things to Managing your Cashflow Successfully

Good cashflow management is key to a successful business and can often be the difference between survival and growth and business failure. Here we share 3 things to help manage your cashflow successfully.

Processes

1. Accounts Receivable process (in English, that is your sales invoicing and credit control processes) – how often are you invoicing, and when are you invoicing? What are your payment terms? Are your clients actually paying on time?
2. Accounts Payable process (that’s purchase invoices, bills etc) – are you paying your suppliers in accordance with their payment terms? You can often negotiate prompt payment discounts, or simply paying on time may enable you to avoid late payment charges or interest
3. Inventory processes – are you holding onto stock for too long? Review your ordering processes and identify strategies to shift the stock that’s been held for too long (this also applies to service businesses who have Work in Progress)
4. Bookkeeping – are you doing this regularly? You may want to take a look at last month’s Top Tips post, 10 Steps to Getting your Finance in Order and make sure you do this monthly, if not weekly. Nowadays the banks send over data into Xero every 24 hours, if not instantaneously – you could do it daily and do it small bitesize chunks. Out of date data can give you a false sense of security, and an incorrect financial position.

Overheads

1. overheads are regularly ignored. Review these every year, and possibly every quarter. Is your marketing spend bringing in the returns you expected? Could you re-negotiate rent – do you even need an office? Compare your utilities (phone, electricity, gas, water) and insurance every year. Using an insurance broker can often save you the time and hassle of comparing and finding the best deal and won’t cost you any extra
2. Are all your subscriptions necessary? Are you utilising them all to their full capacity? Do you need that premium version or can you make do with the ‘freemium’ one?
3. Consider implementing an expense budget and trying to stick to it!

Gross Profit

1. This is made up of two parts – whether your Gross Profit margin is correct in the first place, and whether your sales levels are high enough to cover your overheads
2. are you confident your sales price is correct? If you know that your prices are correct, you may need to look at wastage, work in progress, team efficiency and so on to ensure your costs are not out of control
3. If your sales levels are too low, you need to look at why this is – you may be in the growth phase of your business and therefore still trying to build the volume – this is ok, as long as you can stay on top of your liabilities. If you are already established, look at customer retention, lead generation, sales conversion, transaction frequencies etc. (You may wish to watch our 7 Ways to Grow Your Business webinar which covers some of these strategies)

Looking at these three areas will ensure you have covered all bases. You may wish to use a tool such as Futrli Flow to flag areas for improvement, and areas of concern, and Futrli Predict to forecast your cashflow.

These are tools designed for business owners – anyone can sign up (Flow has a free version) – we do also have discounted licenses available for our clients so if you’d be interested in finding out more, please do get in touch.