How to manage your cashflow
Checklist
- Regularly monitor and revise your cashflow budget to anticipate potential cash shortages.
- Invoice promptly and chase outstanding payments vigorously
- Develop warning systems to identify where delays or unexpected changes could cause the business to run out of cash.
- Be prepared to trade off profitability and other business objectives when your cashflow position is, or may become, critical.
- Minimise the amount of cash owed to you by restricting credit periods or factoring debts.
- Generate short-term sales income by offering incentives to bring forward purchases and discounts for cash payment.
- Cut unnecessary costs and shop around for competitive prices; negotiate generous payment periods and short delivery lead-times.
- Use your stock control system to minimise cash tied up in stock.
- Be prepared to turn down orders if you cannot finance them; negotiate deposits or stage payments for large orders and long-term contracts.
- Assess your cashflow position before committing to any new expenditure or increases in overheads; consider using leasing to finance assets.
- Build relationships with financiers and suppliers so they will extend extra credit when you need it.
- Arrange additional financing before you need it; seek equity investment if cashflow will not safely cover interest payments.
- Sell unproductive or superfluous assets and discontinue business lines with negative cashflow.
- Take into account short-term fluctuations which do not show up on monthly or weekly budgets.
Cardinal rules
Do:
- focus on receiving payment for sales
- keep cashflow budgets up to date
- avoid unnecessary or excessive expenditure
- arrange appropriate financing, before you need it
Don't:
- assume payments will be received on time
- tie up excessive cash in working capital
- overtrade by accepting orders you cannot finance
