No Money? No Problem! Managing Cash Flow

August 29, 2017

Uncertainty is the bane of all small businesses, there are extreme anxieties in whether a business can keep afloat while also making the most of the more cost-effective methods at their disposal. It’s a common discussion on how to keep a business running effectively while still making sure that the funds are going to the relevant areas. And as the business faces increasing challenges in its cash flow, it’s something that will always lurk at the back of any entrepreneur’s mind because it’s the vital thing that keeps the momentum flowing. So how can you do this effectively while making sure your company continues to grow organically?

The Notion Of Structure

The structure is vital in every single aspect of the business, but when it comes to building one, it can leave a company in disarray when clients are reluctant to pay up on time. So the trick is to prevent these problems before they occur, which can be implemented into your typical contract. And these can include establishing late payment fees, setting deadlines for payment to encourage a sense of accountability, and also offering discounts if they pay early. Incentives are a very useful process in business, it encourages positive working relationships and it sets you up as a company that is not passive in its approach to payment.

Strategic Payment Solutions

It’s important to remember that payment problems may not be to do with clients but it may be to do with your internal infrastructure, in which case you would need to find your own solutions to cash flow issues, and one of these solutions is to make the most of a business credit card. If you are continually struggling with clients paying on time, a business credit card can be a viable option to take the pressure off when you are struggling to pay your employees. You can use the credit card to pay off assets, but it’s also important to think about long-term approaches to paying off assets, especially if you have an upper limit on your credit card. Many companies specialize in asset based lending such as Equify, and you can find out from Equify if that is a realistic option for you to go down. On their website they speak of five basic principles that can impact the success of a business, such as finances, equipment, as well as assets. Asset lending may be a more sensible option if you are struggling in the long term financially, especially if you are constantly leaning on your credit card to get you out of a jam at the end of a billing period. And while interest on a business credit card is tax deductible, you may not see a return on these until the next financial year.

Holistic Analysis

Yes, it may sound like a very “now” business term, but if you can take the time to assess the infrastructure within your organization, you may diagnose persistent issues that may not result from your clients. Instead, you may want to undertake a detailed analysis of your cash flow by looking at your statements and see if there are any glaring issues. If so, you can identify the problems and better prepare for your financial future. It is also worth setting up direct deposit payments, which are something more businesses and even solo freelancers, are making the most of now. The benefits of this over a standard paper check system are numerous, and even in the meantime if you set up a PayPal account or the equivalent it means clients can wire the money to you instantly. This reduces the waiting times, and issues constantly involved with late payments meaning you might be able to get yourself out of a financial sticking issue in the nick of time. And don’t forget, there is a plethora of software available to you to help manage your finances better. Undertaking a holistic analysis, it may lead you to conclude that you aren’t as organized as you think you are which may mean implementing more suitable software packages or even hiring a professional accountant to keep an eye on your books.

Create A Forecast

Prevention is always better than cure! So if you build a cash flow forecast for the next six to twelve months, which can be done very easily with the software packages mentioned before, you can keep track of your finances easier. It will encourage you to keep an eye on the more prescient financial aspects of your company, from the conditions of the current market or looking at supply and demand. Or even looking at issues closer to home that increases your outgoings, for example, a higher heating bill during the winter months.

Alternative Solutions

These options are pretty common for businesses but may require a bit more forethought. Invoice factoring, for example, is a type of accounts receivable financing which will help you to make money from your outstanding invoices. You enlist the help of an invoice factoring company that will advance you approximately 80% of the value of the invoice while they chase up the client. Being aware that there are fees involved is important. There is also equipment financing, as well as inventory financing, which is done by many companies that offer asset financing. There are plenty of options, but as ever, it’s important to do your research.

Cash flow problems arise, but it’s important for you to keep a lid on the situation, especially when you have numerous employees expected to be paid promptly. And it’s not their concern at the end of the day, it is yours! So when it comes to keeping the cash flow situation under wraps, you need to get an overall understanding of the process and what options are available to you. But you also need to think about the best preventative measures rather than attempting to chase clients at the last possible second, which is a very stressful process for you and the business. The financial aspect will always be a big part of your concerns, but if you can have some common sense and get your affairs organized it will make life a lot easier for you.