Healthy cash flow means so much more than your bank balance’s bottom-line at the end of the week. It’s a small business’s ability to cover expenses, pay back debt and plan for the future.
These nine crucial steps will help put you on a path to cash flow success.
1. Budget well
A solid budget is the cornerstone of healthy business cash flow. Without it, you’re likely to miss any warning signs of problems on the horizon. So, schedule time to build a robust financial plan, including forecasting your revenue and expenses. Then factor in savings for future growth – you’ll also be well placed for seasonal business cycles, one-off costs and any unforeseen issues that come your way.
2. Spend wisely
You’re the boss. So, you call the shots when it comes to purchases, right? That means reining in the urge to spend big on impulse buys and seriously think through the pros and cons of every dollar spent. For example, a set of ergonomic office chairs might be advertised for a bargain price, but will they ultimately improve your bottom-line? If the answer is no, think twice about opening the purse strings.
3. Keep personal and business separate
Are your personal and business finances wrapped up together? If the answer is yes, you’re not alone. Historically, many small businesses have only been able to access funding through personal mortgages, loans or credit cards.
But the finance landscape has changed in New Zealand with alternative lenders now enabling businesses easy access to capital. And in order to have a strong grasp on your business’s cash flow and financial health, it’s important to keep your personal and business finances separate.
4. Be proactive
Stay on top of all your transactions, and keep in mind that most suppliers will be open to working with you on a payment plan to help pace your expenses. Burying your head in the sand when it comes to cash flow issues caused by overdue taxes, missed loan repayments or unforeseen bills is never the answer. A small business loan might be able to help bridge any gaps.
5. Chase invoices
Sounds simple, but we know finding the time to chase invoices is hard to come by. That’s where an online accounting system is worth its weight in gold, thanks to its ability to schedule reminders for overdue invoices weekly, fortnightly or monthly.
6. Cut back on stock
Holding onto old stock can suck the lifeblood out of any business. But there are ways you can shift it, while still earning some money. Consider offering customers a discount on bulk orders, host a stocktake sale or find out if stock that is simply unusable can be written off. And remember, clearing stock means freeing up space, which could lead to savings on extra storage.
7. Keep it lean
If you’ve been running your business for a while, you might have forgotten what you signed up for in terms of daily utilities, equipment hire or rent. Remind yourself. Speak to your accountant and see where you might be able to make some savings when it comes to your ongoing costs. Do you really need an office this size? After moving your business online, do you still require a shopfront? Keeping your overheads low is a great way to help keep you in the black.
8. Modernise payment systems
Make paying easy and convenient for your customer, otherwise you run the risk of losing the purchase or delaying payment. You can do this by clearly outlining links to payment options, including a credit card payment method seamlessly linked with your accounting system, and issue invoices online.
9. Limit low-profit products
Offering some products or services that generate little (or no) profit is a common tactic for most businesses, with such items known as a ‘loss leader’. Sure, they can help to secure new customers, but they do come at a price.
The key is to find the right balance. Check that the product’s price balances out your costs, taking wages, supplies and stock into consideration. And keep a close eye on things, making sure that those products that do come with a negative margin make up for it by generating ongoing interest from customers who turn into profit-makers.
Most small businesses experience cash flow highs and lows throughout the year. If you have cash flow concerns, contact Prospa to find out how a small business loan may be able to help.
