Managing cashflow in a small business

Managing cashflow is a vital part of running any small business – it’s why we exist! 

Without proper cashflow management, your business can struggle to pay its bills, meet payroll, and invest in growth. 

As we enter the New Year with a promise of more economic turbulence ahead, we thought it timely to bring together some of our top tips and strategies for managing cashflow in a small business that we have covered in the past. 

• Create a cashflow forecast: 
  You won’t be surprised to know that our number one tip is to create a cashflow forecast! A cashflow forecast is a projection of the inflow and outflow of cash in your business over a certain period. It helps you anticipate and plan for financial highs and lows. To create a cashflow forecast, start by listing all your expected sources of income and expenses for the coming period. This should include items such as sales, payments to suppliers, rent, salaries and taxes. Then, take your opening bank balance, add your expected income and deduct your expenses to determine your net cashflow. Alternatively, you can let CaFE do it for you.

• Monitor and track your cashflow:
  Once you have a cashflow forecast in place, it’s important to regularly monitor and track your actual cashflow against the prediction. This will help you identify any discrepancies between your forecast and reality and adjust your financial plans accordingly. Users of CaFE have all of this monitoring done for them. There are a few key metrics to pay attention to when tracking your cashflow.

• • Cash balance: This is the amount of cash you have on hand at any given time. You should aim to keep a healthy cash balance to ensure you have enough funds to meet your financial obligations. Look at our article on managing cash reserves in your business. 
  • Debtor Days or Days sales outstanding (DSO): This metric measures how long it takes for your customers to pay their invoices. A high debtor days figure can indicate that you are having trouble collecting payment from your customers on time, which can have a negative impact on your cashflow. 
  • Creditor Days or Days payable outstanding (DPO): This metric measures how long it takes you to pay your bills. A high Creditor Days figure can signal that you are you are paying your bills slowly. While this will help cashflow by keeping cash in the bank, it can catch up with you in the end. 

• Manage your accounts receivable:
  Your accounts receivable (AR) is the money that your customers owe you for goods or services that you have already provided. It’s important to manage your AR effectively to ensure that you are getting paid on time and to maintain a healthy cashflow. Here are a few strategies for managing your AR:
  • • Offer multiple payment options: Make it easy for your customers to pay by offering a variety of payment options, such as credit cards, online payments, or payment plans.. 
    • Follow up on overdue invoices: If an invoice is overdue, follow up with the customer to ensure that payment is made in a timely manner. This can be done through phone calls, emails, or mailed reminders.. 
    • Consider using invoicing software: Invoicing software can help you automate the invoicing process and make it easier to track and manage your AR.
    • Negotiate payment terms: If possible, try to negotiate longer payment terms with your suppliers. This can give you more time to pay your bills and improve your cashflow. 
    • Prioritise your payments: If you are short on cash, prioritise your payments to ensure that you are meeting your most important financial obligations first.
    • Use a purchase order system: A purchase order system can help you track and manage your AP by providing a clear record of your purchases and payments.

• Manage your accounts payable: 
  Your accounts payable (AP) is the money that you owe to your suppliers and creditors. It’s important to manage your AP effectively to maintain a good relationship with your suppliers and to maintain a healthy cashflow. Here’s how you can do it – read our article on how to hold on to cash in your business, but still keep your suppliers happy.

• Consider financing options:
  If your business is experiencing cashflow issues, there are several financing options available to help bolster your working cap
  ital. You can read our article about this for more information.Want to know more? We’ve written a comprehensive guide to managing cashflow in your business, which you can download by following the link.