Updated: Mar 15
A question that I am commonly asked by business owners is ‘where is the cash?’ as they may be reporting a profit, but the cash is nowhere to be seen.
In our current economic environment where cash remains ‘King’ it is imperative that businesses have good cash flow in order to remain viable and grow.
Most business owners I see make an assessment on their cashflow based upon the quantum of funds in their bank account, which can be a misleading indicator.
So how do you know where your business sits with cashflow? Preparation of regular cash flow forecasts is key to tracking your cash flow rather than relying on the money (or the lack thereof) in the bank.
Cash flow is a combination of the flow of cash through your profit and loss statement and cash movement in your balance sheet. Therefore, a solid understanding of your financials is imperative to fully understand your business and it’s cashflows which will lead to better decision making.
Let me share with you my top 10 ways to improve cash flow in your business:
1. Increase revenue where possible through new sales offerings or price increases
2. Decrease expenses and purchases where you can without affecting your product or service, look at your top 5 expenses to deliver the biggest savings
3. Bring the cash in faster by requesting a deposit upfront, invoice straight away and collect debtors quicker through easy payment options, pay on time discounts, regular reminders and follow up’s or even look to debtor financing
4. Push out creditor payments to supplier terms or utilise pay on time discounts
5. Turnover stock regularly and employ strategies to reduce wastage and monitor stock levels
6. Review your financing to ensure you have the best rates and the right products. If you have money in the bank are you investing the surplus cash with the best return? Could you look to refinance short term debt to long term debt to deliver savings?
7. Look to utilise all your assets (land & buildings and plant & equipment) to their full capacity or sell unnecessary assets. Could you look to hire out or sublet space to bring in more income?
8. Instead of purchasing plant & equipment could you look to lease it?
9. Make sure your business is structured correctly ensuring you are minimising tax across the Group
10. Move towards ‘cloud’ software as a service rather than hardware and desktop to enable automations and integrations to reduce processing times and cost.
Behind each of the above items there are strategies that can be applied and levers that can be pulled. Some will be quick wins with small changes, others may take some time but deliver a Big Bang result.
Each business is different, so it is important to engage with professionals to ensure the right decisions are made to improve your cash flow position and they can also help to set you on the right path with forecasting. Happy Cash Flow Hunting!
This infographic also gives some tips on how to avoid the cash flow crunch.