How To Keep Your Business Cashflow Positive
Money, money, money…
It is something we both love and love to hate!
When they say that money doesn't make the world go round, they mustn't be talking about running a business. Because unfortunately, having the right amount of money at the right time in the month is what keeps a business running smoothly!
Managed and understood correctly, cashflow pumps life into all aspects of your business, keeping it strong, successful and growing.
So, it stands to the reason that neglecting your cashflow - even temporarily - can get you into trouble pretty quickly.
That's why it is essential to monitor this metric regularly, and take steps to ensure you keep your cashflow positive.
Here are our top tips to keep everything flowing in the right direction.
Keeping Your Business Cashflow Positive
Cashflow and profitability are two very different things. Your business can be cashflow positive without making a profit, and the opposite is also true.
Profitability is a broader term describing how much money is left after all your expenses are paid. It doesn't take into account the ebbs and flows of your money over time.
Cashflow is more of a snapshot in time metric. It outlines the money coming into and going out of your business in a given period. If more is coming in than going out, then you are cashflow positive!
Timing Is Everything
Staying cashflow positive is all about timing. It is making sure that money coming in is ready and waiting in your account before it is due to go out again. Admittedly, this can involve a lot of fine-tuning. Get it wrong, and you are going to find yourself in negative cashflow.
This doesn't mean your business is going to fail immediately, but if it happens too often, you could find yourself in sticky situations of not being able to make payroll, pay your tax bill, or pay suppliers. Obviously, that is not a position any business owner wants to be in!
So the goal is to have enough money in your bank to cover all your expenses, right? Money that is on its way to you or coming in from clients next month is of zero use to you if your bills are due this week.
To make sure your cash is flowing in, get your invoicing sorted. Make it easy for clients to pay you by offering a number of payment options. You might also choose to give them incentives to pay you on time, such as early payment discounts or late payment fees. Always follow up late payments promptly, and use accounting software to take care of automatic reminders and invoicing.
Study The Flow And Be Prepared
While unexpected things can and do happen in business, there are certain things that are predictable – like taxes, for example. If you have a seasonal business, you know that you are going to be flush with cash for some months, and potentially struggling for others.
The secret to cashflow success is to plan accordingly! Make sure you put money aside during the positive cash flow times to cover for those periods where you might be thrown into negative cashflow.
Regardless of fluctuations, you should always have an emergency back-up fund on hand for any unpleasant surprises. Put aside enough money to cover all your expenses for at least a month - better yet, from three to six months.
Talk To The Experts
Who better to get financial advice from than a financial expert!? Your accountant can help you get a solid grasp on your cashflow, offer advice on accounting software, and help guide you on where and when to cut back on expenses and maximise revenue.
Here at Strive Accounting, we excel in helping you remain cashflow positive. We are specialists in small to medium business accounting, so have plenty of experience that you can draw on. Get in touch with us today to chat about how we can help you avoid being strapped for cash.