Good cash flow management is essential when operating any kind of business. Cash is needed to pay creditors and therefore poor cash flow management can lead to financial trouble and even insolvency.
If you are a small business owner, understanding how you can stay on top of your cash flow management is particularly vital. Many small businesses fail due to cash flow problems, so make sure that you follow these top tips to stand the best chance of navigating a complex and competitive environment:
Keep Up To Date With Your Invoices
Firstly, make sure that you have a steady stream of cash coming into your business. The sooner you send an invoice, the sooner the money owed arrives in your account, so keep on top of sending invoices and be as prompt as you can. Regardless of their size, make sure that all invoices are paid. If debtors do fail to pay, communicate effectively so that you avoid a situation in which repeat offenders unbalance the cash flow of your small business.
Monitor Stock Levels Carefully
It can be tempting to take on a lot of stock if you want to boost sales within your business, but overstocking products can lead to serious cash flow problems if you are not careful. Stock can quickly diminish in value so pay attention to your sales and only hold stock that you need. By managing your inventory effectively, you will be able to reduce the amount of cash that is unnecessarily flowing out of your small business. This money can be put to better use, such as for paying staff and/or creditors.
Pay Attention To Profit Margins
Though profit and cash flow should never be confused with one another, your profit margins and general profitability are good indicators of the direction your business is heading. Declining profit margins can be caused by a number of factors, including increased costs or new competitors, and can often be the start of cash flow issues. Therefore you should always pay attention to your profit margins as part of small business cash flow management and be prepared to make changes to the way you operate to stay competitive should profitability begin to decline.
Stay On Top Of Expenses
Staying on top of costs and expenses is an important habit for businesses of any size. It can be easy to forget to monitor business costs if performance is positive, but small and regular savings can make a big difference to your cash flow. Take the time to look at what you are spending money on and decide if these are necessary expenses. Cut costs where you can and always look to operate within your means as a small business. If you can’t find anywhere to make savings or do need to take on additional costs, research different suppliers and always think about how your cash flow may be impacted.
Sensibly Utilise Credit
Credit is a valuable tool for businesses, giving you a useful amount that you can borrow at any one time. Though borrowing can be expensive and you should never borrow more than you can realistically afford to pay back, make sure that you do take advantage of credit options to some degree. Credit will help your small business cash flow management by giving you more flexibility when it comes to how and when you can make payments.
How To Deal With Cash Flow Problems As A Small Business
Following these top tips should help you with your small business cash flow management. Cash flow problems should not be ignored or allowed to worsen as they can lead to insolvency and business closure. Therefore, if you start to spot issues with your small business cash flow management, seek expert help straight away.
The team at Ballard Business Recovery are here to help if you want to understand your options as a small business and overcome difficulties that might arise from poor cash flow management. Don’t hesitate to get in touch today to discuss your situation with one of our experts.
