Cash flow is king

It's important to find out the months when your business is likely to be short of cash. That will help you plan ahead and minimize the impact of cash flow problems.

Cash flow forecasting tools are great for tracking when and from where your business will receive cash, along with how and when the cash will need to be spent.

Forecast your cash needs for the next six or 12 months for your business.

Once you know how much cash you'll need and when there are likely to be shortfalls, it's time to improve your cash flow.

Manage accounts receivable proactively

Manage accounts receivable proactively in order to improve your cash flow and minimize write-offs of bad debts.

Here are some ways to enhance the management of your accounts receivable process:

• Carry out a credit check on each new customer
• Improve your invoice system by introducing an electronic invoicing system so that invoices can't be lost in the mail; you should also add your bank details to invoices so customers can pay you by direct deposit
• Invoice promptly if you're working on a large project, and invoice in installments rather than waiting until the whole project has been completed
• Deposit cheques in the bank as soon as you receive them
• Consider changing your payment terms to 14 or 30 days
• Follow up on all unpaid invoices as soon as they become overdue

Other ways to improve cash flow

Depending on the nature of your business, there are several other ways to improve cash flow, which include:

• Making your inventory ordering process more efficient. Think about introducing just-in-time ordering, and withdrawing products that don't sell very quickly.
• Selling assets that are no longer used on a regular basis. If necessary, lease or hire vehicles or other assets whenever you need them in future.
• Maintaining assets regularly and repair them when necessary. This should mean that they have a long life and don’t need to be replaced frequently.
• Considering purchasing good quality, used equipment rather than new items.
• Growing your sales by increasing your marketing efforts, introducing a loyalty program, or expanding your product range.

Whenever you have excess cash in your business account, transfer it to either a business savings account or a business investment account. A business savings account allows you to earn interest on even small amounts of surplus cash. 

On the road to growth in profits, cash flow is king. Healthy cash flow will enable you to rent your business premises, pay your staff salaries, and meet all your commitments.

Surplus cash will help your business to thrive on a long-term basis and provide a safety net for the months when your cash outflow exceeds your inflow.