Spotong Issue 19

Page 21

FINANCIAL MANAGEMENT

G N I W O L F T I P E E K ood of your business

Cash flow is the life-bl

C

ash is king, but just as there are good kings and bad kings, there are good and bad ways of managing cash flow, the life-blood of your business. Get on the king’s good side by applying the following best practices.

Set cash flow targets One way of controlling cash flow is to prepare and maintain a cash flow forecast. You can update it weekly so that you have an accurate cash flow outlook for the next six to 12 months. Setting targets is an excellent way to ensure that your cash flow situation receives the right amount of necessary attention. You will get a feeling of satisfaction and ownership when you hit and beat your targets.

Agree clear payment terms It’s important to establish clear payment terms from the beginning of any new business relationship. If you don’t start off knowing what your payment terms are, it’s difficult to know when you are going to get paid. If you don’t know when a payment is overdue, you are not going to manage your cash flow. It’s a good idea to insist on payment within 30 days. Your staff need paying in 30 days and your suppliers also need paying in that time.

Invoice quickly When your invoice is in your hands. It’s best to invoice clients as soon as the work is done. If you wait two weeks after the work has been complete, it will take a further two weeks before that cash arrives in your bank account. Rather invoice by email so that it gets there at once and you have a record that you sent it.

Make payments easy Making payments as easy as possible is a good way to increase your levels of customer service. Whatever is most convenient for customers will also mean the money reaches you sooner. Online payments are the best option.

Establish payment arrangements that suit your business There is always a gap between when you invoice and are paid but there are ways to reduce the gap. A particularly effective way is to encourage direct debit as the normal way for debtors to pay you. It means you can scale up business without increasing the costs of collecting debt. It also provides a stable cash inflow for you to make payments from.

Use technology Technology can make it much easier to manage your cash flow. Cloud-based accounting is the biggest time-saver for many businesses, allowing them to work more effectively, free up time, and keep a better track of cash flow. It gives you flexibility on where you can view your accounts and also takes away the hassle of backing up data. You can view your accounts on the move with a mobile device and stay in touch with your financial situation. Accounting software can also make things easier if you don’t have a lot of time for administration

Focus on cash flow instead of profit It is estimated that 90% of small businesses don’t have a cash flow plan

from the first day they start operating, even though they will forecast their profit margins years in advance. This is a very common reason that businesses fail. However, it is accepted wisdom that if your cash flow is in order, your profit will be in order. To make it past the first six months, businesses need a good cash flow to survive. It’s best to work with smaller clients who are reliable and pay on time rather than run after bigger clients who have payement terms. Don’t allow yourself to be blinded by profit.

Train someone to monitor your cash flow Some small businesses have a dedicated person to keep an eye on money going in and out. Consider training a reliable employee to watch the debits and credits so that there is always enough cash in the bank.

Keep in touch with the bank Banking services like overdrafts or credit can be very useful, especially when a business is just starting out. However, it is crucial to keep the bank informed of any unforeseen changes in your cash flow. Provided you are sensible about what you spend, the bank will appreciate this communication and be more likely to lend you money when you need it. www.spotongmag.co.za

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