8 tips for managing your business’s cashflow


8 tips for managing your business's cashflowMany of our clients and visitors to our website are company directors or self employed running businesses both large and small.

One of the key challenges faced by many small businesses is managing cashflow, we’ve therefore asked the highly experienced Serena Humphrey of Transformational Financial Management, for her top tips for better cashflow management.

Serena writes:

The reasons that a business fails are varied, but ultimately there is just one reason, it runs out of CASH.

With credit continuing to tighten further, if that seems possible, managing your cash is the single most important thing you can do to make sure your business stays on track.

Even if cashflow is not tight just now, if you put some cashflow monitoring place you will keep it that way.  Once cash gets tight it, will eat up so much of your day that it affects the running of the business, and starts a quick decent into a downward spiral.

My 8 top tips for keeping control of your cash are:

1.   Keep a 13 week rolling cashflow forecast

This should be something that your book keeper can put together in excel.  This means that you always have visibility of the next three months which gives you time to take action before something become a problem.

a. Forecast what debtor receipts you expect to receive and when

b. Put all your direct debits and standing orders in

c. Schedule in PAYE, VAT and corporation tax

d. Schedule your suppliers so you can plan who you are going to pay when, especially useful where you have large suppliers who have to be paid on time

e. Wages & salaries need to go in on the due dates

If you can see tight periods developing, it’s worth splitting out some of the weeks into days to see where the pinch point is, for example where the wages, VAT and bank loan all go out on the same day, the sooner you know about it the sooner you can re-arrange something.

Having this visibility allows you to calmly plot out the next three months, so you can get on with running your business without the worry of cashflow eating up head space.


2.    Keep a tight rein on your debtors

This is just such a critical area that I cannot stress this enough.

If you don’t already, make sure you get a copy of the debtors report at least once a week; a couple of reasons for this:

a. No one will care as much as you do about getting the cash in on time

b. It creates an accountability, your accounts staff then know they will need answers on any debts over terms so it keeps them on top of every customer

c. You will see immediately if a customer goes over terms and it will put you in the loop if there are any disputes or cashflow problems developing with your customers

It’s all a question of being at the top of their list of people to pay; this comes from having really good credit control procedures and your customers knowing that you are not someone they can fob off.

Don’t be afraid to put customers on stop if they are not paying. I know it’s a balance between not wanting to turn down sales, and / or upset your customer, but at the point they went over terms you became a free funder of their business.  And there is a reason why they are not paying, they can’t afford to.  Far better to limit your exposure than risk losing more if something goes wrong.

Credit check your customers and put them on a credit tracker so you find out if something in their business changes.

Consider debtor insurance, not necessarily cheap but far less expensive than a bad debt.

Get your credit controller to become best friends with the purchase ledger clerk in your biggest customers, it’s surprising what you will find out if things aren’t going well.

3.    Sales forecast and pipeline report

Sales drive cash, so just as important as the cashflow forecast, make sure you get a weekly report telling you:

a. Order book by month for at least the next three months

b. Estimate of sales based on leads and pipeline

c. What the shortfall is against your sales target

By being on top of this information you have the confidence to either know the next three months look ok, or know when to start worrying and pushing to get sales up

4.    Manage your exposure to your customers

Make sure you can afford to lose your biggest customer overnight, so if they stopped trading and you lost any debt they owe you, and the on-going business stopped, would you survive?

If the answer is “no” then your business is dangerously exposed. This might not be an immediate cash danger, but time to revise the business plan so that you are not reliant on just one customer

5.    Review your overheads

Overheads can creep up over time, especially when business is good and confidence is high.  Ask to see the nominal ledger reports so you can see every transaction going through in the last quarter, you may find some easy savings.

6.     Are your customers profitable?

This is massive topic on its own, but it won’t matter how good sales are if your customers, products and / or services are not in themselves profitable.  Therefore the resulting cashflow will never be positive.  Make sure you keep a close eye on the monthly gross margin and understand the mix of product and customers and how they affect the margin.

7.    Does your business generate cash each month?

Make sure you know if your business is cash positive once it has made loan repayments, a business can appear to be profitable but this profit won’t take account of loan and finance payments.  Check this out to make sure you are not leaking cash every month.

8.    Management Information

Make sure you get the critical intelligence you need from your business, monthly management accounts and weekly flash information, if you have the information you need at your finger- tips, you can respond to problems as soon as they happen and keep your business firmly on track.

If you would like to speak to Serena about any of the topics raised in this article she can be contacted on 07966 387 969 or emailed at serena@serenahumphrey.com