5 essential cash flow management techniques
The success of a business often depends on how healthy its cash flow is and how well it’s managed. As a result, many wonder how to improve cash flow, ensuring they have enough incomings to balance with outgoings.
If you’re a new or growing business then this is especially important, as it’s likely you will have experienced lower levels of available working capital. Having plenty of working capital allows you to invest in greater resources, increase production and comfortably cover outgoings for a smooth cash flow.
Below are some of the best methods we’ve found to effectively manage your cash flow.
First and foremost, you have to know the status of your cash flow in order to be able to manage it. This means keeping a close eye on every area of the business where money is involved, and regularly checking how much is being spent versus received.
Once you have a good idea of the business’s general cash flow health, you can begin to plan ways to improve it. If you find any problems, such as a few large expenses that mean more money is going out than coming in, then look for and apply a fix early on.
You should locate any inefficiencies which are hampering your cash flow immediately, as even small ones can lead to big losses further down the line. This includes monitoring your overheads to see if you are spending unnecessary money on running the business, as well as having a clear picture of the overall state of your business.
It could also include selling assets which are outdated or no longer needed, as this can provide you with capital to finance more jobs or reinvest in the business.
Creating a smooth cash flow isn’t all about cutting back costs. It may sound counterproductive, but investing in your business by hiring new staff and equipment will eventually lead to greater profits and more money coming into the business.
This in turn will ease cash flow problems and make them far easier to manage, which is a great help when it comes to running a business.
Such investments can help build up an emergency fund for cash flow problems. This could prove to be a life saver and a worthy investment further down the line, as it will prevent cash running out – which would grind your business to a halt.
One of the most effective cash flow management techniques is speeding up payments. This means encouraging the customer to part with their money before the end of the invoicing period.
It could include asking for an upfront payment before work has started or is completed, or offering incentives for early payment, such as a discount.
If you find cash flow challenges are affecting your short-term business finance, our invoice finance services can help smooth out your cash flow. Our cash flow solutions here at MarketInvoice make it quick and easy for your business to secure funding against your outstanding customer invoices.
Getting paid upfront means you’ll have access to more cash for helping with things like business operations, paying employees, investing in growth and more.
Managing your cash flow doesn’t need to be an overly complicated process, provided you have the systems in place to effectively control it.