How to Improve your business Cash flow
Keep your Business Cash Flow in check.
The success of your business is dependent on the way you manage the cash flow of the business. A business could be highly profitable but still default if it does not meet its short term debts. There may be times when it is unavoidable to experience cash flow reductions, such as spending your reserved cash on new capital or suffering from unexpected weather conditions that forces the business to close for a while. However, it is definitely unhealthy for the business to suffer cash flow problems on a regular basis and it may cause harm for the business in the long term. Good cash flow management and contingency planning will allow majority of these problems to vanish. Here are a few ideas on how you can improve your cash flow cycle.
Operating at a Loss
Many new businesses may operate at a loss in their first few years of trading. The costs of starting up a business normally exceed profits. However, if the business is over 3 years old and still making a loss, it may be of your best interest to carefully monitor your expenditure to ensure that money is not spent needlessly or on the wrong things.
Having a Clear System
A good system can ease out any fluctuations in your cash flow cycle. For example, a service provider can think about taking an upfront deposit of any project it undertakes or charging on a completion basis. Not only will it keep money available for short term use but allows more effective tax planning as profits is smoothed over periods.
It is good practice to review your credit control on a specific day every week. Keeping a routine check-up allows you to clearly identify what has been paid, what is pending and what is late.
Paying your Bills by their Due Date
You should always pay your bills on time. However, it is better to pay your bills as close to the due date as possible. It is advisable to pay around 3-4 days before the due date so that any issues arising in regards to the payment can be rectified in time.
Giving Customer Incentives for Early Payment
Offering discounts to new customers to encourage prompt payment can be beneficial for your company cash flow. Bear in mind that discounts should not be too deep otherwise it will eat into your profit margins. You can also offer discounts to recurring customers that make large payments in order to reduce the risk of cash flow problems arising from delayed payments.
Penalties for the Late
Often people do not react to rewards quite the way they react to punishments. Giving customers a penalty fine for any late payments will likely grab their attention and prioritise you on their payment list. Don’t be too harsh on late payments though as others may have temporary issues with their cash flows and imposing a penalty may end up hurting business relations.
Saving for a Rainy Day
Unexpected occurrences and accidents can happen out of the blue. Make sure you put aside some reserves for one of those “emergency” situations. Not all situations can be accounted for but having enough funds to deal with the likely ones can let you breathe a bit easier.
Seeking Professional Help
Many businesses struggle to keep their finances in check. The unfamiliarity of running a business and being unable to cope with numbers can be a grinding headache for business owners. An easy way to relieve the ongoing stress is by hiring an expert bookkeeper like Tax Affinity. They can advise you on managing your costs, list strategies to improve your revenue and also handle your tax affairs all. You can now focus on driving your business forward rather than being worried about the upcoming loan repayment. Take note on how the company finances are handled so that you are able to step in if needed.
By Wilson Law at Tax Affinity.
Tax Affinity Accountants are considered in the market to be experts in Tax and Accountancy in the UK. Based in Kingston upon Thames they have clients are right across the UK as well as Europe, Middle East and North America.
For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends.
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