Top Tips To Keep Cash Flowing

Making sure there’s money in the bank to cover the bills seems like an obvious element of business planning but bunged up cash flow is often the demise of many businesses. Seasonal fluctuations, bad debts and unforeseen expenses can play havoc with a business’ cash flow but good planning will avoid catastrophic outcomes. The first priority is to establish an accounting system that keeps business owners in the picture every day of the year.

Small to medium-sized businesses benefit from accounting software such as Xero because it lets them quickly build up useful data that immediately shows highs and lows of income and expenses.  A budget and cash flow forecasting can be developed to plan for tricky periods. For example, if a heat pump installer is aware of a payment for a bulk order of units by late autumn – then the company needs to plan to have a healthy cash flow to cover payment.

Some simple measures such as invoicing clients immediately and making sure they pay on time is the first fundamental step. If admin nightmares stop businesses from issuing invoices quickly there are great cloud-based programmes such as GeoOp and Harvest that make the task a breeze. Chasing payment might send a shiver up your spine so enlist the help of an expert and make sure the terms of payment are clearly included in the initial agreement. When a cash flow forecast indicates a business has a serious blockage it’s time to chat with suppliers to slow down payments. An appointment with the bank is also recommended to present a case for a temporary overdraft.

If a business has a good track record with credit, and banks and suppliers know them for the right reasons, they will have greater understanding of the situation and be more willing to assist. Cash flow can be bogged down when businesses don’t charge enough for their goods and services. Imagine if a childcare centre didn’t have a clear understanding of its operating expenses and charged too little to remain profitable. Providing a service at a loss does no favours to anyone in the long term.

Small annual price increases are much easier for customers to accept rather than a massive increase that sends them looking for another company. It makes sense to put rainy day money aside to cover unplanned expenses such as a vehicle breakdown or computer blow out.  Even ACC or tax payments have been enough to send businesses under when they don’t accumulate cash reserves.

Finally, if businesses have funds invested in stock that isn’t moving – it’s time to have a sale and turn product into dollars. For guidance with maintaining healthy cash flow contact a Business Buddy at Astill Hawke & Associates at http://www.businessbuddy.co.nz .