Cash flow issues are among the most common causes of business failure. Launching and running a company requires careful financial management. It can be very challenging to balance the books, particularly in the early days. In this guide, we’ll provide some tips to help you avoid cash flow barriers.
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Budgeting
Budgeting is hugely beneficial for businesses of all sizes. With an accurate budget, you can determine how to spend your money and set limits to prevent getting into debt. Update your business budget regularly, use precise numbers rather than estimates where possible and try to use the figures to reduce expenses. Keep a close eye on where your money is going and monitor your income against your outgoings. You can use apps or software programs to manage your budget, and you can also start forecasting to help you predict profits and losses and decide how to utilize your money.
Invoices and deadlines
When you manage a company, it’s natural to want to form strong bonds and positive relationships with customers, but this shouldn’t come at the cost of falling behind with payments. Issue clear instructions for clients and set firm deadlines so that you are not chasing outstanding invoices or enduring financial hardship because you are owed money. Remind customers to settle bills when the deadline is looming and consider using a commercial collection agency if you’ve tried and failed to recoup payments. Communicate clearly from day one and make sure you have a collection process in place to handle payments quickly and seamlessly. If you let deadlines pass, you run the risk of getting into financial trouble.
Managing debts
It is common for businesses to have debts, especially during the first few years when the outgoings tend to be higher than income. If you have borrowed money, it’s essential to make your payments on time and to include any recurrent costs in your budget. When you reach a stage where you can start to clear debts, tackle high-interest loans and credit cards first. If you are borrowing more money, or you are using credit to survive, it’s wise to seek expert advice to help you manage your debts and find a solution.
Lowering expenses and increasing sales
We often focus on boosting sales when trying to tip the balance towards generating profits, but it’s vital for business owners to be wary of both their income and their outgoings. Reducing expenses can help to increase the margin and improve cash flow. There are several ways to lower spending, including considering more flexible, short-term staffing options, negotiating better deals on supplies, using technology, such as automation software, to increase efficiency and productivity, and streamlining processes. If you’re keen to supercharge sales, consider promotions and discounts, make sure your marketing campaigns are targeted and use customer feedback to make improvements to your products and services.
Cash flow issues are one of the most common reasons new businesses fail. If you run a company, it is critical to try to balance the books from the outset. Use budgeting techniques, set clear deadlines for client payments, manage your debts and aim to reduce expenses and boost sales.
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