Knowing how to improve cashflow is always important and as we continue to live and to trade in uncertain times, cashflow management is even more important.
We also face a very difficult banking climate which puts a huge premium on self-reliance, being the master of your own cashflow destiny and not having to look to your bank for funding.
So here are five ways to improve cashflow and make more money.
1. Cashflow model
Build a simple cashflow model in a spreadsheet, which might look a little like this:
Stay grounded in reality, go backwards for six months to see what the actual cashflows have been before you go forwards and model the future.
Update the model each month with the actual cashflows for last month and any modifications to what you think the next few months will bring.
Use the cashflow model to identify changes you can make across your business that will bring more money in.
If you are a borrower, share your cashflow model with your business bank manager early on so they can see the steps you are taking to manage cashflow and you can identify future pinch points and manage them together.
2. Credit management and control
If you offer credit to customers can you use a direct debit service such as GoCardless?
Credit management starts with trying not to market to customers who are bad credit risks or slow payers and ends with consistently getting paid in good time.
You have to pay attention to credit control because otherwise cashflow suffers, costs rise, stress increases and your business might fail.
We have a number of blogs on credit management that you might find useful.
3. Improve margins
The more profit you make from each sale, the more money you make. So, review your prices and your costs of sale to see where improvements can be made. Be competitive, but that is not necessarily the same as keeping prices low.
If every £100 of sales you make can generate an extra £5, how much more money will come into your business?
See our blog on profitable pricing.
4. Reduce overheads
How to improve cashflow – spend less money!
Every pound of overhead is a pound of cash that goes out of the door.
Review your overheads to make sure you are not spending more than necessary and also to ensure you are getting value for money spent.
5. Phase payments to creditors
Some payments, particularly quarterly ones like VAT, rent and lease payments, can fall to be paid at the same time, creating a difficult pinch point every three months.
Can you change the months in which these payments are made so they are phased more smoothly and put less pressure on your cashflow?
For example, you can you ask to change your VAT quarter to move the VAT payment to another monthly cycle.
By staying on top of your cashflow, you will be able to grow your businesses without relying on or borrowing as much money from your bank.
You earn more or pay less interest, you can re-invest the cash generated in growth or by rewarding key staff and you have more time to concentrate on running your business – doing what you should be doing!
Michael – @bluedotmichael