A number of profitable firms have been bankrupted in the past because the quantity of money coming in does not match the amount of money going out. Firms that do not manage their cash well may not be able to make the necessary investments to be competitive, or they may have to pay more to borrow money to stay afloat.
Small businesses may be crippled by cash flow issues as well, and the excitement of sales can lead to poor cash flow management. For small businesses, late payments and missing bills are all too prevalent, and they generate big issues.
Why is cash flow management important? If you want to keep your business viable, good financial management is essential, but it's much more critical if you want to grow and spread your brand. It can also assist you in anticipating and planning for financial shortages and surpluses.
What can I do now to manage my cash flow better? We have assembled some helpful tips in this post to help you handle your money more successfully and efficiently, regardless of the type or size of your business:
Realistic projections of your financial situation
A realistic cash flow estimate for the next two months, and then monthly after that, is the foundation of good cash flow management. This may provide you peace of mind knowing there is enough money flowing in. If it's not positive, on the other hand, it'll at least show you how much money you'll need to keep the firm running.
Although much has been stated about banks' unwillingness to lend, the truth is that banks want to lend, but they require a complete 'pack' of financial data and a projection before they can fully evaluate a company. If you can't demonstrate that you know how to handle cash flow in a firm then it is unrealistic to expect banks to lend you any requested amount.
Refer to financial experts
Don't get discouraged if your cash flow exceeds your current capacity. Examine your spending and see if you can postpone some of your obligations for a while.
Consult an expert, such as your accountant, lawyer, or turnaround specialist, who understands how to manage cash flow even in the most difficult of situations. You may find that their expertise can provide more value to your business.
Incentivise and offer promotions
Promotions are a terrific approach to swiftly and efficiently increase sales. You may hold a contest, launch a client loyalty and referral programme, or use clever social media posting to generate buzz.
Incentives can also be used to manage the flood of employment. You don't have to refuse projects if you have more than you can manage; offer a discount if the client is prepared to postpone the work. This not only allows you to handle several projects without straining your resources but also ensures that you'll have a consistent flow of income in the months ahead.
Prepare emergency funds
Businesses should always maintain emergency financial reserves. During economic downturns, this gives you some flexibility and security. A decent rule of thumb is to have enough money to last at least three to six months.
This tip has become even more essential now as the Coronavirus pandemic has shown how an unprecedented crisis can severely affect the economy and your own finances as well. Mitigate the impact on your finances by preparing emergency reserves for your business now.
Reduce costs and expenses
While increasing revenue is usually an excellent cash flow management approach, lowering costs might accomplish the same objectives in a different method.
Whether you have a payment due soon, investigate if you may get a payment extension. Delay as long as you can, but even a few weeks or days can have a big influence on your cash flow.
Hire part-time personnel to fill up the gaps in your staffing if you can't afford full-time employees. If you have unneeded equipment, consider renting or leasing it out to save storage expenses (and earn some additional cash). Look for alternative methods to boost your profit margins—lower supplier costs and higher pricing are both smart places to start.
Managing your financial flow may be a difficult task, especially in these times of economic uncertainty, but here at Persona Finance, we aim to alleviate your financial burden and simplify your overall business needs. For more information on our services, please contact Persona Finance at [enquiries@personafinance.co.uk].