5 Simple Tips To Boost Cash Flow In Your Business

INTRODUCTION:

Cash flow is the life blood of any small business. In tough times or in eras of growth, keeping an eye on the money inflows and outflows is crucial.

Like everything it's very easy to miss doing the basics that could make a huge difference. Small business accountants and advisors should be checking that each of their clients are doing the following as a minimum.

Figure 1: If cash is tight it's time to get running!

1. Review Your Invoice Terms

As a small business accountant I have seen many types of invoicing terms and the more generous ones often have me asking "Why?".

Be careful of offering terms that seek payment such as "30 days from the start of the following month after the invoice has been raised". Always try and bill invoices daily. Letting them build up into a nice little "nest egg" might make you feel better when you do them all at once but it won't help your cash flow.

Based on your current terms examine how big your debtors' days should be and measure how many days they actually are. Do what if scenarios with your small business accountants to see how much extra cash you can generate in the upcoming financial year compared to the actual of the previous financial year (you will marvel at the comparison).

2: When Are your Invoices Raised and Sent?

When do you raise your invoices? Do you only raise them when cash is getting tight? Or do you have a system whereby they are raised as soon as they possibly can and the service or product has been supplied?

Review your three way budgets (including cash flow forecasts) to see how much you should have billed in a certain month and how much you should have collected.

3: How Are Your Outstanding Invoices Followed Up?

What action do you take when invoices have not been paid on time and how long do you wait to follow these up?

Consider:

• employing a debtors clerk who follows outstandings daily;
• sending statements and following up with a phone call asking for a date as to when they will be paid (make a note so you can remind them of what they said last time);
• send texts ;
• consider cutting off supply of the future product or service;

4: Always Quote Upfront

Eliminate uncertainty by quoting a price before you commence a job. Being vague or providing a 'surprise' bill will almost invariably lead to disputes and delays in payment. Where there are variations communicate as you go rather than waiting until the end.

Be very clear in your terms about the quote and when you expect to be paid.

Figure 2: Always try and hit cash flow forecasts and balance sheet and profit and loss budgets Photo courtesy Scolari Comerford Accountants Sydney and Dubbo

5: Screen New Customers

It's always very tempting to want to get a new customer and so the natural tendency is to assume they will be good for payment.

Perform credit checks and ask for supplier references.

CONCLUSION:

These tips above are quite basic but it's amazing how many business owners fail to check these strategies. Monitoring your cash flow with your small business accountants will not only increase your bank balance but also improve your business valuation.

After all, who wants to buy a business that struggles to generate cash?