There are many ways you can improve your cash flow. For this to work it needs to be as ‘automated’ and ‘systemised’ as possible. Furthermore key people in the organisation must ‘own’ their role in improving cash flow. It needs to be a clear responsibility of the relevant people within your business.
Here are some ideas:
- Send invoices as soon as the work is completed (properly).
- Encourage electronic payment. This is faster and much easier to track.
- Monitor overdue accounts – usually the responsibility of a bookkeeper. Depending on the size of the business and the nature of the cash flow this should be done weekly if not daily.
- Follow up overdue payments promptly – don’t delay just because you think it might lead to an awkward conversation. You have a right to be paid for work performed.
- If you have surplus cash sitting in a bank account, ensure it is in accounts that are earning interest – tough with interest rates as they are around the world.
- Pay people on time, this is a Christian responsibility (Psalm [37:21]). If someone has done work for you, then technically it is a debt, even if you don’t pay interest on it. Paying on time does not mean paying unnecessarily early.
- For project work, charge with progress payments. Sometimes projects go slowly because the customer is slow, not the supplier. The supplier can go broke waiting to be paid. Use contracts that have progress payments based on achieving certain milestones.
- Always look for alternative revenue streams. The only caution here is to not lose focus on what your core business and core skill set is. The point is to have an approach of continual growth and improvement.
- Shop around. Regularly reassess your suppliers to ensure that you are getting good value for money. Naturally there are benefits of building loyalty with some suppliers, but it should not be at the detriment to the company cash flow.
- Unhappy clients are an opportunity. Some business people try and hide when something goes wrong in their business. The best way to deal with unhappy clients is to get on the front foot. That way they will pay you properly and on time. Unhappy clients who feel they’ve been neglected or misled will become painful and potentially take action against you.
There are a few other things that are important to keep in mind, especially if all of this is very new to you:
Tips for Start Up Businesses
- Avoid all forms of leases and contracts – why rent if you don’t need to? Don’t go and buy a new car with a lease. If you need a car, buy a second hand one and upgrade later.
- Work from home if possible – with all the modern technology having an office has become less of a need. You may still need some office presence, which is where a virtual service can come in.
- Go Virtual – Use Virtual Services (office/phone) – you can have an answering service where a professional executive assistant answers your phone calls or offices that you can hire on a per hour basis. There are many options available. Not only can they save you money, but can give you a professional image from day one.
- Evaluate Costs Regularly – At least once a year analyse each of your expenses to see if you really need them. A great strategy used by some businesses is zero-based budgeting whereby you reset all expenses to zero at the start of each year in your budget. You then have to analyse and justify the reason for each expense. It prevents the laziness of just taking last years budget and making minor adjustments to it.
- Be Cautious – Cutting expenses too fast, too much or making redundancies can have a profound impact on staff morale. You should be cost conscious always, but don’t unnecessarily unsettle staff.
Article supplied with thanks to Wealth with Purpose. Alex is a licensed financial planner and the founder of Wealth with Purpose a Stewardship Ministry that helps Christians handle their money God’s way.