A business’ cash flow is simply the movement of money in and out of that business. Cash flow is not the same as turnover, which is the total revenue you receive, and it’s not the same as profit, which is the revenue you receive minus your costs. Your cash flow is precisely the amount of cash you have on-hand for spending. Your cash flow also takes into account the money that comes in from various sources, which includes your investments and loans. As a business owner, you will already know how vital it is to have cash available because this means that you have extra resources when necessary. And the more positive your business’ cash flow is, the more money you will have if you want to make investments. But even whilst we know the importance of cash flow, making sure we have it is another matter altogether. So how can you avoid problems with your business’s cash flow? Keep your annual accounts updated to manage cash flow. Let’s find out.
Analyse your pricing model
If you are selling products or services, you would want to make sure that your profits are enough. But what if your profits are too low? Some startups, for instance, make the crucial mistake of setting the cost of their products or services too low that they barely make enough to cover their expenses. When you are trying to price your products or services, make sure to factor in your full list of costs, including getting your product or service to your market.
Be mindful of late-paying clients
You also have to be mindful of late-paying clients, which means keeping a close eye on your invoices. Clients will generally delay their payment, and if you have large clients, they may even feel that they can push it to the limit. This can certainly strain your business’ cash flow. With large clients, you can try to negotiate earlier payments and provide a small discount in return.
You can also have more severe problems once clients don’t pay at all. For this, the best thing you can do is check and assess a client’s credit records before taking them on. You also have to come up with stronger practices for credit control so you can chase as well as recover debts, as the accountants in central London at https://www.gsmaccountants.co.uk will readily confirm.
If you have a business that is dependent on raw materials or stock, it wouldn’t be in your best interest to have more stock than you can handle in a specific time frame. You should try to keep your business’ stock at the level you are most likely to use it before your next delivery. This is what makes up “just-in-time” manufacturing, which helps prevent you from tying up too much of your cash in raw materials or stock that’s just not being used. If you have to buy stock and it’s more than your cash flow, you may opt for trade financing, which is a form of business credit for the short term.
Evaluate your overhead expenses
Your overhead expenses are indeed a necessity so you can run and operate your business, but they don’t directly relate to your business. Some examples include rent, IT equipment expenses, lighting and heating bills, and employing a cleaning service. It is entirely possible to reduce your overhead expenses as well, so it is worth looking into.