The number one problem for the majority of small businesses is cash flow. Some time ago a business friend and mentor told me that it’s not a lack of orders that will usually break a business; it’s a lack of organised cash flow. Numerous businesses, large and small, have failed because of a lack of cash flow; it’s important to get it right.
Here are 7 tips for better cash flow in your small business.
1 Invoice promptly
Many businesses wait until the end of the month to produce all invoices. That might work well in terms of blocking work and admin time, but it means that if your client takes 30 days to pay, you’ll be waiting longer for the money. Make it a habit to invoice immediately after one-off jobs are completed, and only invoice regular work at the end of the month.
2 Get on top of your business finances
Make a habit not only of checking your bank balance, but also of knowing what is expected in, what’s due to go out, and generally how things are going. When running Pacific Direct, Lara Morgan had one day per month where she would sit at her desk and go through everything in minute detail. You might think that excessive, but you also wouldn’t knock the multi-million pound deal she got when she sold the business she had started from scratch.
3 Know your breakeven point
If you speak to any successful business owner they will know not only what is coming in and going out, but how much they need to sell each month in order to break even and when they will begin to show a profit. This sort of thing is essential if you want to make sure your cash doesn’t dry up. It will also make sure you stay on track throughout the month; if you know you need to hit X amount in sales in order to break even you can track this on a weekly or even daily basis to ensure you will get there.
4 Micro manage big orders
If you are dealing in physical stock and accept a big order, you might find yourself in a position where you’ve had to pay out more money to suppliers to fulfil the order – perhaps on a 14-day or 28-day account – and have a shortfall whilst you prepare the order, ship it to the client and wait for them to pay your invoice – perhaps 30 or even 60 days later. This sort of thing can be easily dealt with when fulfilling smaller orders, but one big order can sink your business if you’re not careful. Work through the numbers very carefully, and negotiate with your client to ensure your cash flow doesn’t suffer.
5 Use a spreadsheet to forecast your cash flow
I love a good spreadsheet! One of my first ever admin jobs involved updating the cash flow spreadsheet of a small business I worked for. We would set out a sheet for the month showing everything due to go out and everything we expected in; we could then see clearly any point in the month where we might be in danger, and juggle things accordingly. The day you find a zero balance in your account is not the day to try and resolve the problem; by then it’s too late. Good forecasting can help you to avoid this.
6 Look at small business finance
When you’re scaling up your business and taking larger orders or diversifying your offering, this can be a time when cash flow gets tricky. Rather than wait for things to get difficult and risk running out of cash, look into the possibility of small business loans to help you maintain your cash flow while things are growing.
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