How Can A Small Business Avert A Cash Flow Crisis?

 

A good cash flow is important to all types of businesses. Keep in mind that profit and cash flow are two different things. Your business may be making huge profit margins and you may be witnessing robust growth; however, if your money is all blocked up in the stock, you may not be in a position to make timely payments to your suppliers, which could harm your business’ standing. Therefore, it is essential to maintain track of what money is getting in and leaving your business.

Here are the handy tips that will assist you in keeping your cash flow running efficiently:

Maintain a cash flow estimate

To maintain track of all finances and to avert any type of shortfalls, set your business targets for the coming 6 to 12 months. The simplest method to set up cash flow estimation is by maintaining a worksheet that lists out income and costs on a month to month basis. Pay close attention to any seasonal variations; for instance, heating bills will most likely increase in winter. Factor in fixed as well as variable costs to your cash flow estimation and be practical by including each and every item.

Foresee problems before they take place

Recognise prospective cash flow problems beforehand by constantly updating your cash flow calculation, continually monitoring market conditions, observing suppliers and customers who may be in difficulty, and taking appropriate steps as soon as you identify a problem. When you’re able to stay on top of your cash flow, you can easily tackle problems resourcefully and swiftly. It is also a good idea to speak to a business mentor or investor or an accountant for their valuable advice and suggestions.

Remain cordial with your lenders

From time to time, many businesses need cash boost up from a bank or financial lender, especially, when they’re at the point of just beginning where they might need a credit or an overdraft. Remain on good terms with the financial organisations (i.e. lenders) and also keep them well-informed of any unexpected outgoings or modifications in the estimates. By nurturing a cordial relationship with financial organisations and banks, based on trust, they’ll be more willing to support you positively in case your business requires financial aid in the future.

Remain on top of your payments

From the beginning of doing business with the suppliers, set out clear payment terms (30 days is standard). Never delay in sending out invoices and be prompt to chase bills that get overdue. You should know the dates of your customer’s payments and never overlook delays or irregularities. A customer who pays poorly might abscond. When you know when you’re going to receive the payment for a product or service, it will assist you to keep on top of your cash flow.

Remain on top of stock management

Efficient stock management is equally important for resourceful cash flow management. When you settle your bank account (i.e. weekly or monthly), at the same time, settle your stock records too. This way, you’ll stay on top of items that you have missed in stock and those that need to be reordered. A resourcefully managed stock control system will have an optimistic impact on your cash flow because you’ll never be holding excessive stock nor will all your funds be blocked up in it.

Credit support

Assume that your business is expanding fast; for instance, you’ve just signed a new contract with a new client and you’re troubled about getting adequate cash to meet your operating costs. Here, you’ll probably have to get the credit support from a bank or financial organisation or pawnbroker – for instance, an overdraft or short-term business loan. Once you get paid from your client then you can pay off your loan. You’ll just have to pay interest to the bank or financial organisation or pawn shop for the particular period of time you needed the cash.

Easy way of getting a short-term business loan