I see so many times in the business world that small businesses make a lot of profit but fail because of terrible cash flow. This may not make sense – You make a great profit, but you have no money? This is exactly why I’m doing this insert; How to get your cash flow up to scratch.
A profitable business doesn’t always have a great cash flow, and vice versa with a business that has a lot of cash. Your business might have a great bank balance, but you owe creditors a lot of money, or your bank balance is low but you have a lot of stock or a lot of people that owe you money.
Without a good Accountant or information about your business, it’s very difficult to determine the profitability and the cash flow of your business. This lack of information is often the downfall of small businesses. The saying goes, “cash is king” and for a small business, it is even more important. So let’s look at tips that can help you get your cash flow right:
- Manage your debtors better
Debtors are clients who owe you money. It is critically important to have a good credit system in place so that you know daily or weekly exactly who owes you money and when they are going to pay. With today’s technology, it is also possible to automatically remind your clients to pay their bill by sending them a text message or e-mail. And when customers’ accounts fall into arrears, it is important to take action as soon as possible. Many times business leave overdue clients until the last minute and then it is usually too late to save anything.
- Credit terms with clients and suppliers
If you are required to pay your suppliers cash when ordering, but you give your customers 30 days to pay their invoices, immediately there’s a possible cash flow problem. You pay money but will only get the money again in about 30 days. Small businesses should look at getting the same terms regarding the suppliers and customers. You pay your supplier in 30 days and your clients pay you in 30 days. And of course, it will be a bonus if you can pay your suppliers even later.
- Delayed billing
When a business is still small and most tasks depend on the owner doing it, the general trend is that invoices are issued late – or at times never. For a business to maintain a good cash flow, it is critically important that invoices are issued every day like a product or service.
- Separate your business and personal account
Small businesses are usually run by one owner and it happens so often that this owner lives from the business account. School fees are paid from it, groceries are purchased and then you leave the business without cash. The best advice for any new entrepreneur is to separate your business and personal matters right from the start. Pay yourself a salary and keep to your personal budget.
Only 9 out of 10 new businesses survive within the first year and most businesses struggle to cope thereafter, because of cash flow problems. It certainly is a challenging problem, but by following basic principles, you can emerge relatively easily and cope. Most entrepreneurs realise it too late and then it is very difficult to change things, so make sure you start today and realise that cash is indeed king!
Visit my website at www.marnusbroodryk.com and let’s discuss small businesses and the interesting world of entrepreneurship.