Cash management within a business, especially a small start-up business, is very important. Without enough cash in the bank you cannot pay your suppliers, bills or staff. This can put a stop to growth and even put your business into decline and bankruptcy if the cash situation is very weak. The following three tips will help your business take control of cash management and improve your businesses cash position to help you grow for the future.
“A budget is telling your money where to go instead of wondering where it went” – Dave Ramsey
Tip 1: Record, Analyse & Track
The first action to take is to ensure that all income, expenditure, sales and invoices are being recorded. The most effective way is using software or, depending on the size of your business, an outsourced bookkeeper or internal dedicated finance function. By recording all transactions you will be able to analyse what payments are outstanding, what payments are due and what your cash flow projections are for the next month, 6 months and year. Then from this you can implement ways to improve your cash flow situation, reduce customer payment terms, extend payment times to suppliers, drop non-profitable or late paying customers and, focus on your high profit contracts.
Tip 2: Product Based vs Service Based
A business that sell products can charge their customers upfront, whereas a business selling services invoice when the service is completed and payment is then expected within a month. It is clear which method is best for cash management. If your business is a service business then consider changing some of your services into products. An example from the book ‘Built to Sell’ by John Warrillow is rather than sell a service to create a business logo, sell them the product which is the 5 step process that generates the logo design they want.
Tip 3: Keep It Simple
To get the message of effective cash management across to your team you should keep it as simple as possible. Always use the same terminology throughout and refer it back to the cash effect, reducing debtor days may not mean much to some staff yet a target of reducing customer payment times by 5 days will get x amount extra cash in the bank is a simpler target to set. Standardised processes for monitoring, recording, chasing payments and payment terms etc. will also help keep things simple for your team to manage and understand.
Cash management is important and these tips only touch on what your business is currently doing and do not go in to increasing sales, making savings or raising additional finance
We hope you have found these tips useful and are able to use them to improve your business and investments. Don’t miss out on future tips - subscribe to Turner Invest newsletter on turnerinvest.co.uk and follow us on social media.
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Turner Invest Directors Catherine & Stephen Turner