Cash Flow Series - Managing Cash Flow in Your Business
Welcome to a new series of blogs for 2018 on managing Cash Flow in your business.
You have heard of the common expression that “Cash is King”. It's so true and cash is vital for small business survival. Cash is King is critical for businesses starting up, growing or even exiting. At any stage of the business life cycle, cash is vital. Without cash, there is not a chance for business survival.
Invoicing is part of good cash flow management. Once you've delivered a product or service, don't wait to invoice - invoice immediately. A product or service that has been delivered is the closest thing your business has to cold, hard cash. The sooner you invoice your client, the sooner you'll receive payment.
Some cloud accounting packages have mobile app solutions that will enable you to invoice at client's premises or when you sell a product. Delayed invoicing will harm your cash flow and your business.
Consider sending invoices immediately, or on a daily basis, depending on the nature of your work. If you are providing a service, think about asking for a deposit upfront, or a payment part-way through.
5 quick rules that you can immediately adopt into your business today relating to invoicing and collecting payment faster. To maintain a healthy cash flow, you need more than just strong revenue plus you need to be able to collect that revenue too. In this blog, we are not talking about other cash flow measures, only invoicing.
Rule Number 1 - Keep your books up to date and accurate. Your cash flow is only as good as your accounting and reporting. Make sure your accounting information is updated regularly. If your accounting information is not up to date or not correct, the information that you review will be incorrect. If accounting information is up to date and accurate, then you can see the financial state of your business at a glance.
Rule Number 2 - Don't be too lenient with your customers. Be direct and fair without being a pushover. A clever but polite invoicing strategy will usually get you a long way. But don’t be afraid to take more formal action if you need to. Keep a close watch on your accounts receivable turnover at all times. If it’s trending up, it might be time to step up your efforts at chasing payment. As receivables age, their quality goes down, so you should act sooner rather than later.
Rule Number 3 - Keep your accounting simple. If you’re not confident with numbers, hire a professional accountant. Use quality cloud accounting software, so you always know your cash position. It will also help you forecast your cash flow for planning purposes. A reliable accounting system will help you track and report on key business metrics. These include accounts receivables aging, operating margins and inventory turnover. Having a good handle on these business metrics will help you manage your cash like a pro – and take advantage of new opportunities.
Rule Number 4 - Keep your business and your personal finances separate. This is so important if you want to understand your business cash flow and forecast how it might change. Mixing your business and personal finances can leave you uncertain about business performance. Keeping them separate will let you know how much cash your company is generating. Then you’ll be in a good position to properly pay yourself – and use excess cash to strengthen and grow your business.
Rule Number 5 - Build a cash reserve. How would you feel if your business had a cash reserve? Access to cash will make or break your business. The ultimate step to managing cash flow like a pro is to build a cash reserve. A cash reserve provides the cushion you need to manage unexpected events. It also gives you the confidence and finances you need to grow your business.
It’s not always possible to build a large cash reserve. But if you do, it can insulate you from the economic cycle and the whims of banks and other lenders. It will also let you take advantage of opportunities when they present themselves. Building a cash reserve puts you in a position of strength. It might mean paying yourself a little less in the short term, but in the long term it will put your business on the path to success. That ultimately means more money in your pocket.
Following the five rules above will help ensure that cash serves you – rather than the other way around.
Cheers,
Peter Adams
Invoicing is part of good cash flow management. Once you've delivered a product or service, don't wait to invoice - invoice immediately. A product or service that has been delivered is the closest thing your business has to cold, hard cash. The sooner you invoice your client, the sooner you'll receive payment.
Some cloud accounting packages have mobile app solutions that will enable you to invoice at client's premises or when you sell a product. Delayed invoicing will harm your cash flow and your business.
Consider sending invoices immediately, or on a daily basis, depending on the nature of your work. If you are providing a service, think about asking for a deposit upfront, or a payment part-way through.
5 quick rules that you can immediately adopt into your business today relating to invoicing and collecting payment faster. To maintain a healthy cash flow, you need more than just strong revenue plus you need to be able to collect that revenue too. In this blog, we are not talking about other cash flow measures, only invoicing.
Rule Number 1 - Keep your books up to date and accurate. Your cash flow is only as good as your accounting and reporting. Make sure your accounting information is updated regularly. If your accounting information is not up to date or not correct, the information that you review will be incorrect. If accounting information is up to date and accurate, then you can see the financial state of your business at a glance.
Rule Number 2 - Don't be too lenient with your customers. Be direct and fair without being a pushover. A clever but polite invoicing strategy will usually get you a long way. But don’t be afraid to take more formal action if you need to. Keep a close watch on your accounts receivable turnover at all times. If it’s trending up, it might be time to step up your efforts at chasing payment. As receivables age, their quality goes down, so you should act sooner rather than later.
Rule Number 3 - Keep your accounting simple. If you’re not confident with numbers, hire a professional accountant. Use quality cloud accounting software, so you always know your cash position. It will also help you forecast your cash flow for planning purposes. A reliable accounting system will help you track and report on key business metrics. These include accounts receivables aging, operating margins and inventory turnover. Having a good handle on these business metrics will help you manage your cash like a pro – and take advantage of new opportunities.
Rule Number 4 - Keep your business and your personal finances separate. This is so important if you want to understand your business cash flow and forecast how it might change. Mixing your business and personal finances can leave you uncertain about business performance. Keeping them separate will let you know how much cash your company is generating. Then you’ll be in a good position to properly pay yourself – and use excess cash to strengthen and grow your business.
Rule Number 5 - Build a cash reserve. How would you feel if your business had a cash reserve? Access to cash will make or break your business. The ultimate step to managing cash flow like a pro is to build a cash reserve. A cash reserve provides the cushion you need to manage unexpected events. It also gives you the confidence and finances you need to grow your business.
It’s not always possible to build a large cash reserve. But if you do, it can insulate you from the economic cycle and the whims of banks and other lenders. It will also let you take advantage of opportunities when they present themselves. Building a cash reserve puts you in a position of strength. It might mean paying yourself a little less in the short term, but in the long term it will put your business on the path to success. That ultimately means more money in your pocket.Following the five rules above will help ensure that cash serves you – rather than the other way around.
Cheers,
Peter Adams
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