The Importance of Cashflow

Cash flow is important to businesses of all sizes and particularly important to smaller businesses, which may lack the cash reserves of their larger counterparts. Here are 4 tips on how small businesses can get on top of their cash flow.

Start with smart pricing

This may seem like an odd tip but ultimately the cash you receive will come from providing goods and/or services and billing for them. While some businesses, such as supermarkets, have prices which are essentially fixed, most businesses have a bit of room for intelligent negotiation, or, to put it another way, a carrot-and-stick approach. For example, even if you agree payment terms of 30 days, there’s nothing to stop you offering a discount for prompt payment. You could also offer other incentives such as X% off your customer’s next order, but if you go down this route, it’s generally best to specify a time limit on this, otherwise you could find a client taking you up on your offer several years down the line!

Get on top of inventory management

There are all kinds of reasons why it’s important to know what you have, where it is and what it’s worth. Managing your inventory effectively will help you to get the best deals with suppliers since it makes it more likely that you’ll be able to order well in advance, which, if nothing else, can help to reduce shipping costs. It will also help to deter staff theft as well as to identify instances of genuine human error, which can lead to customers getting more than they paid for (e.g. a higher-value item instead of a lower-value item). It’s also worth noting that having a clear record of your inventory and its value can be very helpful when it comes to getting finance.

In service industries, you inventory is your time and it’s equally important to have an effective means of recording and managing how that is used, so that you can be sure that your pricing is realistic and reflects the amount of effort put into any project.

Use business finance effectively

While there is obviously a cost to using finance, thinking ahead and getting a low-cost financing deal can free up cash and help you to avoid situations where you wind up having to use expensive finance (if you can get it) because you have a critical expense and lack the ready cash to pay it. Ideally you want to get business finance from a specialist in the area, who’s willing and able to work with your business needs and the realities of your marketplace. For example, many successful businesses are highly seasonal and therefore benefit greatly from being able to vary loan repayments in line with their income.

Organise your record keeping

Anyone who’s ever run a small business knows that in the early days at least, heading up an SME is a classic case of being chief cook and bottle washer and it’s pretty much taken as read that you’ll be working ridiculous hours and quite possibly having to fit in family commitments as well. With everything you have to manage, it’s quite understandable that there’s a temptation to throw “non-urgent stuff”, like paperwork into a physical or digital folder – until “tomorrow”. Resist the temptation. If you do find yourself with a lot of physical paperwork, invest in a scanner with document feed and get it all into electronic format. Once it’s digitized, you can hire a VA from anywhere in the country (or indeed the world) to organise it for you. These days it’s quite feasible to hire someone for just a few hours a week or even a month and doing so both ensures that the work gets done and frees up your time and energy for other matters.