“Cash is king” as they say, so it’s incredibly important to ensure your business has a healthy cashflow to stay afloat. There’s nothing worse than the stress of not knowing how you’re going to pay your suppliers or whether your business is going to stay afloat. There are a number of steps you can take to ensure you have a healthy cashflow for your small business.
Here are our top 10.
- Organise your billing cycle.
Don’t wait until the end of the month to send out your invoices. Instead, ensure your invoices go out as soon as your product or service is delivered. Plus, make sure it’s clear on your invoice when the payment is due and what payment methods are acceptable.
- Make it easy for customers to pay you.
Consider setting up an online payment portal using Paypal or “Eway”. There are also a number of apps which enable you to make your phone or tablet into a mobile EFTPoS machine. Including your bank account details on your invoices will ensure that customers can easily make payments directly into your account.
- Offer incentives for people to pay early.
A small discount to customers who pay their invoices promptly will pay for itself in improved cashflow for your small business. There are a number of apps available that can help with this and which integrate with your accounting software.
- Stretch out your payables to the maximum.
Consider payment terms to be like interest-free credit from your supplier and hold out payment for as long as possible. You might also try to negotiate special terms with your vendors.
- For larger projects or expensive goods, consider asking for deposits and/or progress payments.
Asking for a deposit may help cover initial costs. If a job is going to take some time, progress payments may help your cashflow while the smaller amounts may ensure customers pay on time.
- Make sure you understand all of your costs and price your products or services accordingly.
Have a good look at both your gross and net margins and make sure your prices have kept up with any increases in the costs of inputs.
- Control your inventory.
Having excess stock can tie up significant amounts of cash. Regularly monitor to ensure your inventory levels are within industry norms and periodically check for old or out of date stock which can be sold for a reduced price. Defer any new purchases until inventory levels are back to normal.
- Have a system for automatic reminders and follow-ups.
Most accounting systems allow you to set up automatic reminders and follow-up emails to customers to ensure you’re staying on top of invoices due. Debtor Daddy and Chaser are 2 great Xero add-ons which have easy to use debtor management tools including automatic reminder scheduling. Let us know if you need any help with setting this up.
- Invest in your business.
Streamline processes to increase efficiencies and reduce costs. Consider automating as many of your business processes as possible to save on employee costs.
- Get expert help.
Do you have a debtors’ reduction strategy in place? Consider hiring the services of an accountant or bookkeeper to get expert advice on how to develop a cashflow plan and ensure an overall improvement in the debtors’ management system.
With 90% of small business failures due to cashflow problems, ensuring you have enough cash coming in while making sure you don’t have too much going out is vital for the success of your business. By following these tips you can minimise the chances of your small business becoming another statistic.