How many times have you looked at your accounts and seen a profit, but wondered how that can possibly be right when your bank balance is so low?
Maybe you need to spend more time focusing not just on making a profit but improving your cashflow. Perhaps you need to take money out of the business to fund your lifestyle, or you want to invest for the future, or build up a financial buffer to cover for unforeseen eventualities? Perhaps you need to put systems in place to monitor and improve your cashflow. In the simplest terms you need to speed up getting money in, and slow down paying money out.
So…exactly how do you go about this?
For a start, it may sound obvious, but you need to invoice your clients promptly, for the right amount, and send the invoice to the right person. It’s amazing how many businesses fall at this first hurdle! Make sure that you agree payment terms up front, so that there are no surprises which could lead to disputes and therefore delay payment. And don’t forget to supply your bank details. Have a system to record invoices and track payments so that you can send gentle reminders when payments don’t arrive when they should. (Save the heavy-handed tactics for the serious defaulters!)
You may also choose to delay payments out by paying suppliers according to their payment terms, rather than as soon as the invoice arrives. Or consider careful use of a business credit card in order to defer payments as long as is reasonable without damaging your credit rating or reputation.
Don’t waste funds on unnecessary expenses or tie up bank funds in excessive stock balances. Remember that to grow your business you may need to free up funds in order to invest in equipment or staff. Also, if seeking finance, lenders will look at your cashflow as well as your profit.
Finally, consider using cloud software and banking apps – they will allow you to monitor your funds wherever you are, 24 hours a day, 7 days a week, so you’ll always have up-to-date information at your fingertips!
For any questions, on this blog or cashflow, contact Carolyn of Orion Accountancy