Cash flow projection and management
Elorus Team in Accounting

How to effectively manage your business’s cash flow

A business’s cash flow is considered to be the true indicator of its size and has the power to lift it up or take it down. Good cash flow management reveals solid structuring and carefully mapped moves. On the other hand, poor cash flow projection and management can impede the growth of your firm.

How to manage cash flow in small business

Your sales may be up compared to last year’s but somehow you can’t pay your bills on time. Your clients delay payments creating a cash flow “disruption”… Cash flow problems plague small business from time to time so we suggest you take a look at the following points you need to pay attention to ensure smooth cash flow.

Send out invoices ASAP

Usually, companies have specific dates that carry out payments to suppliers and creditors. The most common cash flow problem that occurs here is that if you don’t send out your invoices promptly you will miss that date and end up waiting to get paid another month. This practically means that your business’s cash flow decreases for that time period while you still have to remain on top of obligations. And this is where you find out you are short of cash. So, be sure to send your invoices to your clients upon delivery of items/services so they can prioritize your payment.

Elorus is a useful tool that helps small business owners with cash flow management to the maximum by offering the ability to send out invoices via e-mail with just a few “clicks” and keep track of due invoices anytime, anyplace.

Milestone payments

Working on long-term projects sometimes leaves contractors without any cash inflow which can be a financial issue. Therefore, if you want to ensure revenue during the project, you need to put it in writing that milestone payments should be provided. For example, a contractor must specify which are the important milestones in a project. This way, they can set up milestone payments around them. When those points are reached, the client should settle these payments according to the initial payment agreement. This way, both parties will be safe and satisfied. The client will not pay upfront without any work done and the contractor will be able to get better at cash flow projection and, ultimately, survive financially.

Create a credit control system (bad debts)

Number two on the list of “Causes of cash flow problems” are bad debts. The term “bad debts” refers to the outstanding amounts your customers owe you with an extremely low likelihood of collection. The damage has already been done and from now on you have to make sure your small business’s cash flow will not suffer the same in the future.

The first step towards regaining control of cash flow is to reassess your customer relations.

This means rewarding consistent clients with credit and switching the inconsistent ones strictly to cash payments. Especially for a new business, applying a credit control system is essential to collecting due amounts and avoid having bad debts in the first place.

An equally efficient solution to manage cash flow would be to run credit checks on new customers and if you discover poor credit records you can follow a partial payments policy, by accepting down payments before rendering goods/services and arrange payoff upon delivery.

Choose wisely between leasing & buying

Depending on the financial status of your business, you can opt for different billing ways to get the right equipment for your production needs. Buying your tech, vehicles, or gear is a business decision with long-term perks since you will own it for good. However, proceeding to business-related purchases when there are more pressing issues like making ends meet daily is not really helpful. The amount of resources you need to buy is substantial compared to the option of month to month lease.

New equipment leasing may not secure possession of assets, but it will help reduce expenditure in the present time. Many business owners decide to start month to month lease agreements regarding vehicle leasing and new equipment.

Readjust your pricing

Another cash flow solution comes from reevaluating your prices so that they cover your expenses and provide a good profit margin. If your business has grown even slightly since its establishment it is reasonable that, if you maintain the same prices while increasing operating costs, your profit margin and eventually your cash flow will not suffice. By adjusting your prices to your company’s current financial state, you not only raise your profits but also increase the inflow of cash.

Good cash flow management can provide you with a safety net to get by during a rough patch, thus it becomes quite clear that you can’t operate a small business on razor-thin margins. Using Elorus detailed reporting graphs you can closely monitor cash flow and act accordingly.

Forecasting

In the course of a fiscal year, not all months have the same cash flow demands. Subsequently, there are months that good cash flow is easy to achieve, whereas there are certain periods when a cash deficit is normal.

We strongly recommend you consulting your accountant on the matter so they can create a cash flow projection for you in order to know what to expect and take precautions.

This way you can have a pretty precise estimation of how much cash your business will require. Then, you can make the most out of the months that have a cash flow surplus. The cash flow projection chart can provide you with valuable insights into your business if compared to the actual cash flow figures. Wherever you find discrepancies you need to further investigate the source of the problem. For example, your telephone bills may exceed the amount projected in the cash flow forecast. This means that perhaps you should entertain the possibility of moving your communications to another provider with more competitive rates.

Manage cash flow and grow your business

Cash flow management problems are very common. They can affect a business regardless of its size and dynamics. However, solutions to cash flow problems can be found if you investigate the core reasons why your company faces them. Quick and temporary fixes won’t do the job and you need to be organized. After all, cash flow management is all about taking measures to minimize the possibility of a cash “hemorrhage” and employing the right tools to avoid it.

Elorus online invoicing and billing platform is the ideal tool to help you keep control of cash going in and out of your business. Register to our forever-free plan, easily obtain performance insights and keep your company growing.

Updated on 21/8/2020