Cash is the lifeblood of any business and managing cashflow effectively is the most important aspect of running a small business. However, the shocking truth is that most small to medium sized businesses fail to take these into account. Cashflow management and cashflow forecasting needn’t be such a time-hungry task, but first lets look at the reasons behind cashflow problems.
Running a business is demanding and stressful and most business owners have countless calls on their time to cope with. Juggling the needs of clients, employees and suppliers as well as keeping stock to a manageable level, making sure health and safety requirements are up to date, bookkeeping is done promptly and ensuring the wages and bills are paid punctually can take up more time than there is in the week. Cashflow management and forecasting too often takes a poor second place to these seemingly more important aspects of keeping the business going. But without cash coming in the business will grind to a halt and eventually fail.
Even a business with full order books can suffer from problems with cashflow and that is because cash can get stuck in various places that prevent it getting to the business’s bank account. The most obvious blockage here is the customer. Business to business is particularly bad for expecting extended credit – especially when the buying business is big and the supplying business is small. Ninety days of credit is not unusual and some bigger businesses think nothing of unofficially stretching this as far as they can. To a small business waiting for that cheque ninety days can seem like a lifetime and many feel uncomfortable about chasing debt if they are owed money by a bigger and more prestigious company. Even debt collecting from individuals can be an uncomfortable experience. Extending less credit or extending credit only to trusted customers will help as will expecting payment on or before delivery of good or service if this is possible.
Another cashflow blockage is holding too much stock. Tight stock control doesn’t just mean making sure you keep stock shrinkage to a minimum. It also means keeping the bare minimum of stock needed for the effective running of the business. Thinking about the stock you hold as cash is a good way of preventing stock becoming a drain on working capital. As well as tight stock control, make the most of any credit that is extended by suppliers. If they offer 21 days take them up on it. Even if you are cash rich it is better to have that cash in your bank account for 21 days earning a little more interest.
Work in progress can be a major cashflow block, especially for businesses that sell services rather than goods. It is hard to keep a handle of employee hours worked if you don’t have a method, preferably computerised, for managing how work is proceeding and logging actual hours spent on that job. Likewise, accurate quotes are impossible to give unless you can accurately predict how much time a job will take to complete.
No Hassle Accounting offers cash flow management packages to small and medium sized businesses. We understand the pressures that business owners are under and we are committed to helping the SME’s and business start-ups in the UK succeed by offering a range of packages to suit all budgets and requirements.