We don’t have to tell you that running a business can be a stressful experience.
There are umpteen different things to manage, from ensuring your company is compliant with the law and that you have the appropriate paperwork in place (from professional indemnity insurance to the required permits) to the mundane tasks that are just part and parcel of trading (product sourcing and of course, selling those products).
Cash flow management is one of the most important, sometimes overlooked, tasks. It’s easy to get bogged down in all of the other aspects of running a business and neglect the cash flow. However, doing so can have dire consequences in the long term, as countless anecdotes showcase.
Let’s now look at some of the best ways to manage your cash flow in the early days of a business.
Have a realistic plan
Before you even start trading, you need to have a realistic plan. This is to ensure that you don’t overspend and have the funds to cover all your business costs.
It’s also important to manage the expectations of your team – where it’s only you, then that’s fine, but if you have staff, you need to be sure they understand.
You also need to factor in any potential cash flow shortages – this is where you can use alternative funding options such as invoicing or asset finance.
Once you start trading, you need to prioritise payments.
Like it or not, some payments will be nearer the front of the queue than others. For example, strict deadlines are behind your tax obligations, which will most likely come before any other commitments you may have. You, of course, have plenty of other essential payments, such as staff salaries and rent.
It’s only then that you should be looking at paying non-essential payments, such as marketing expenses or subscription fees. In other words, the “nice to haves”.
Monitor accounts receivable closely
It’s also important that you monitor accounts receivable closely. This is to ensure that you receive payments on time. You should also have a payment plan to know when payments are due and when customers breach their contracts.
If payments are late, it’s vital that you address this head-on to ensure that it isn’t a recurring issue.
As you gain maturity in a market, you can have more bargaining power with companies and insist on shorter payment terms to assist your cash flow position.
Keep an eye on the cash flow forecast
Finally, it’s important that you keep an eye on the cash flow forecast.
By doing this, you can spot any potential problems before they become serious and see any potential opportunities you can take advantage of.
Doing this regularly – at least once a month – is a great way to stay ahead of the game and keep your business running smoothly.