It’s been called the lifeblood of a business, and many people would say it’s the main indicator of any organisation’s health.
Medical metaphors aside, cashflow is one of the most important areas to keep an eye on as a business owner.
For anyone unfamiliar with the term, it refers to the net movement of money in and out of a business, in the form of income and expenditure.
Unlike focusing solely on turnover or profit, looking at your cashflow should give you an overall picture of your business’s position.
Managing it effectively can help you to mitigate some of the most common problems that businesses face, and make it easier to deal with any challenges that might emerge.
Plan for the best and the worst
The first step to successful cashflow management is to regularly keep track of the numbers and to use them to plan ahead by creating forecasts.
It’s unlikely that any forecast will be 100% accurate, so it’s often helpful to set out your expectations for three different scenarios: a realistic baseline, a situation where your sales are higher than you expect, and one where they’re lower.
This gives you a chance to prepare properly for each outcome, and create contingency plans if you need to.
Improve your invoicing
Late payments are one of the biggest problems affecting cashflow for SMEs.
It’s something the Government has been making efforts to prevent, having launched a consultation on tackling late payment culture last year.
In the meantime, there’s little you can do to guarantee that your clients pay promptly, but there are ways to make it more likely.
One approach is to improve your invoicing process, by making it as clear, quick and accurate as possible.
This might come down to simply explaining your payment terms in detail and sending the invoice immediately after you’ve completed the work, or it could mean making sure the word ‘invoice’ is presented in clear, bold letters on your correspondence.
As a side note, remember to keep copies of your invoices for at least six years, in case HMRC asks to see them.
Save time with software
Managing your cashflow successfully shouldn’t mean you have to spend all of your time on it.
With plenty of apps available for business owners to keep on top of their finances and cashflow, you can let technology do the bulk of the work for you.
We work with cloud-based accounting software provider Xero, which offers several features to help with cashflow management.
Its daily bank feeds give you an accurate and up-to-date stream of figures to work with, and it offers quick and customisable invoicing.
Get in touch
We can help you to monitor and plan your cashflow, as well as advising on strategic business decisions based on that information.
Get in touch to find out how we can help your business.