For a Small Business, Cash Flow is King

Far too many small businesses fail to keep on top of their cash flow and this inevitably leads to the business failing. In a recent survey by accounting software provider intuit quickbooks, they were surprised to discover, poor cash flow wasn’t viewed by business owners as an contributor towards a business’s failure when in fact it is one of the main reason businesses fail.

According to Investopedia, “Cash flow is, the net amount of cash and cash-equivalents being transferred into and out of a business. At the most fundamental level, a business’s ability to survive is determined by its ability to generate positive cash flows, or more specifically, maximise long-term surplus cash flow after all business expenses have been taken into consideration”.

Most businesses encounter times when there’s a lull in revenue, this could be seasonal or because their trade terms blow out beyond the businesses control. Fortunately, there are solutions that you can consider and implement for your business to succeed, here’s few;

1.      Do a review of your business, if you’re more than a one-man band, you should consider hiring an accountant to assist.  Use an invoicing software that prompts you once a payment due becomes stale so that you’re on top of your outstanding debtors. Find out where money is slow to come in from as you’ll have bills to pay and money’s pretty quick when it’s going out

2.      If your business allows, integrate a point of sale system into your website to direct customers to and send reminders to customers that invoice is due. Another option for a business that provides payment terms, offer discounts for timely payments or direct debit options

3.      Where you buy inventory on payment terms, if possible, negotiate your supplier payment terms to be greater than what you offer your customers. Another option is to ask for the payment term to start from day of delivery rather than order date

4.      Take part or full payment upfront, this will work best in businesses that offer high value goods or services and has the advantage of discouraging tire kickers

5.      Maintain a line of credit to use during your lull period and use this as backup plan for an emergency situation. You can also consider using short, fixed term loans when needing to pay for a one-off business expense or want to invest in your business operations.