Cash is essential
Without available cash, your business will not survive. Cash enables you to pay your bills, staff, rent and suppliers. You can’t operate on work alone if the money isn’t coming in. Some businesses make a profit but still go broke because they don’t have enough cash in the bank. For example, you might sell a lot, but if customers take months to pay, you can’t pay your own bills on time.
Know what affects your cash flow
Every business has its main key drivers that affect cash flow and you need to understand them. To put is simply, know what affects your available funds. For some, it’s how quickly customers pay their bills. For others, it’s how much stock they keep or when they pay suppliers. Work out when you receive money and when you have to pay. Knowing this helps you plan and avoid running out of cash.
Your processes matter
Managing your business finances is all about your business processes – in short, how you run your business every day. This includes how you send invoices, collect payments, buy stock and pay suppliers. For example, sending invoices quickly and following up on late payments helps you get cash faster. Having consistency and a process, even as a sole trader, will work magic in any business.
Fix the problems, not just the symptoms
Treating the symptoms of poor cash flow without fixing the causes is time-consuming and frustrating. Borrowing money in an emergency can help short-term, but it won’t fix bigger issues like slow-paying customers or high costs. Look for the real reasons why cash is tight: Is stock not selling? Are some customers always late? Are your costs too high? Fix these problems so cash keeps flowing.
Be ready to change
You need to be prepared to make process changes. Once you find out what’s wrong, be willing to change how your business works. This might mean changing how you pay suppliers, tightening payment rules for customers or using new tools to help with billing. Change isn’t always easy, but it’s necessary to keep your business healthy.
Easy ways to improve cash flow
- Send invoices as soon as possible and follow up on late payments.
- Ask suppliers for longer to pay if you need it but keep a good relationship with them.
- Don’t buy too much stock – just keep what you need.
- Check your available funds often and update your plan if important factors change.
- Cut costs where you can – small savings add up.
- Keep a cash reserve, if possible, for emergencies.
- Look at options like a bank line of credit if you need extra cash for short periods.
- Plan on going to the bank early, not when it becomes urgent.
Common mistakes
- Not keeping good records, which makes it hard to know your cash situation.
- Forgetting that business is slower at certain times of year and failing to plan for that.
- Not putting aside enough money for taxes.
- Thinking sales are the same as cash – remember, you only have cash when the money is in your account.
- Trying to do it on your own without help from specialists. Managing your business’ finances can feel overwhelming, but you don't have to do it alone.
Make cash flow a priority
Managing cash flow isn’t something you do once – it’s ongoing. By following these basic principles, regularly checking your cash and being willing to make changes, you give your business the best chance to succeed and grow. Remember cash is what keeps your business alive. As the cliché goes, ‘Cash is King!’.