We all know that cash is the lifeblood of all businesses. Without cash and liquidity, a business will not be able to meet its commitments and it will not survive.

Ironically you can be profitable and still go out of business, or you can make substantial losses, but be in good financial shape. Why? CASH.

Cash flow management is vital to the growth and success of any business. You can improve and better monitor your cash flow by implementing the following measures:

Prepare a Cash Flow Budget
This is a prediction of the expected inflows and outflows of cash in a business over a period of time, usually 12 months. It can show what funds are available from income earning activities (cash inflows) in order to pay business expenses (cash outflows) and can also predict the bank balance of your business at the end of each month. A cash flow budget can pinpoint the months in which finances will be tight so you can better plan ahead for such months. It also forecasts the months in which there will be a surplus of cash so you can consider how best to use this surplus.

Review your credit terms
Extending credit to customers is a common practice for many businesses but you need to ensure that the credit terms you are providing are not impeding cash flow. One way to improve your cash flow is to reduce your credit terms. If your usual terms are 30 days and you reduce it to 15 days, this will have a direct impact on your available cash, however some customers may not respond favourably. To encourage these customers to pay earlier, you may offer early payment discounts as an incentive.

Manage your debtors
It is critical that you have a system which tracks the income outstanding to your business. You should have a debtors policy which outlines the process of invoicing, debtor statements, collections and following up tardy payers. This may be delegated to a staff member.

Prioritise & manage your business payments
If a supplier provides you credit terms of 60 days, then use it. Take advantage of credit terms extended to you whenever you can as this has a direct impact on your available cash. Similar to managing your debtors, you must also manage and prioritise your creditors on a regular basis.

Review debt levels & finance requirements
It may be the case that your business requires additional finance in the form of a business overdraft or a business loan to fund its operations.

If you have any questions or need assistance with managing the cash flow of your business, contact our office to discuss a tailored solution.