Business finances can make or break your success. In fact, the number one reason why businesses fail is due to poor cash flow and lack of funding. But managing finances doesn’t come easy to everyone, and there are many hiccups a company can experience that will impact their cash flow and how profitable they are.
If you want to avoid becoming another statistic in the list of failed businesses, then you need to focus on your finances; these tips can help you to find ways to improve your cash flow and put you in a better position financially for the long term.
Get An Accountant or Bookkeeper
If numbers aren’t your thing and you are struggling to keep up with your income and expenditure, then you need to bring a professional on board. This could be an accountant or a bookkeeper, but having someone who knows what they’re doing to cast an eye over the figures can help you to see what is and isn’t working when it comes to your money and where you can make improvements for the better.
They can assist you with preparing for your finances, chasing late payments, keeping your spending under control, and ensuring good financial health by giving you a clearer picture of where you are going wrong and how you are losing money or just prevent you from falling into this trap in the first place.
Chase Late Payments
Small to medium businesses rely on their invoices being paid on time. If you don’t have the money coming yet, you need to pay out for wages, materials, overheads and more; then you are going to be in a financial pinch before you know it. You need to be on top of all of your invoices and know when they’re due to be paid, and ensure they are paid on time. There are many reasons why someone might fail to pay an invoice on time; this can be something as innocuous as forgetting it is due, or you could have a delinquent account on your hands. Whatever the reason, having an accounts receivable policy in place will allow you to keep on top of payments, income expenditure and more and increase your chances of being paid on time regularly.
Know Your Running Costs
How much exactly does it cost you to operate each given day? Where is your money going, and is every penny being used appropriately? These are questions you need to know the answers to, and if you don’t, then you may be haemorrhaging cash like there’s no tomorrow.Â
Sit down and look through every single payment you make daily. This includes everything from business rates, rent, utilities, wages, employee expenses, supplies and services you pay for. Are the costs appropriate for your usage? Can you make better use of your money by cutting any expenses, changing suppliers, or changing how you operate? If the answer is yes without you cutting any corners or reducing quality, then this can be an ideal way to improve your cash flow.
Keep Good Credit
Much like you need your customers to pay you on time, you also need to reciprocate this behaviour by paying promptly for all of your expenses too. From suppliers to wages, broadband bills and contractors, delivering everyone as soon as you receive the service will allow you to remain in good credit and ensure you are protecting your financial health too. Poor business credit means you will be less likely to get loans or funding when you need it, be frozen out from working with your preferred suppliers, pay higher costs and interest rates and generally be on the back foot as far as your finances are concerned. You can avoid all this by paying on time and keeping an efficient invoicing system that allows you to keep on top of everything.
Sinking/Emergency Funds
Or a contingency fund, if you will, is an amount of money you hold in reserves that will help you out if you find yourself in dire straits. The general rule of thumb is you need to have around three months’ worth of overheads squirrelled away to help you keep going should the worst happen. Putting more away, of course, can be helpful, but you can also put money away for other costs that might impact your ability to keep trading. A sinking fund for repairs or replacement equipment can come in handy and reduce the need for you to dip into your contingency fund. As can one for covering any out-of-the-ordinary expenses; this can be related to emergency travel options, car hire for business trips, accommodation or anything else you can think of that you wouldn’t generally budget for in your line of work.
Good finances are vital for any size business, and knowing exactly where you stand and how to improve yours can make all the difference as you push forward.