How to stay on top of your cash flow as a small business

Running a small business, especially as a sole proprietor, comes with its challenges. None more so though than cash flow. Without a predictable or forecast cash flow your business will struggle not to mention your stress levels.

Whether your business is sales, online service provider or even a trade it can be hard to predict exact incomes at each given moment. There are variables outside of your control such as people needing or requesting your services and the economic state at the time. Other cash flow inhibitors are non payers or late payers and unforeseen expenses.

The key is to understanding your business and the peaks and troughs. There will always be quieter times that you will need to factor in and make allowances for during the peak times. For example, as a tax accountant, our busy time of year is July through to October due to tax returns and business accounting. Fortunately we do have steady work throughout the year managing accounts, however there is a definite peak during those months.

Our top tips for managing small business cash flow and how you can stay in the positive:

Forecast Sales

As mentioned, look at your sales patterns and forecast what you can expect to generate each month. You can start this with as little as one month behind you, but ultimately 6 – 12 months will give you a really steady picture. This will factor in peaks and troughs during the year. With a sales forecast, you can see where your income is generated and allow for the times where it might be slower.

Check your spending

It might sound obvious, but being lean and mean when it comes to spending in your business is essential. Anything that doesn’t benefit your business growth is probably best left for another day. Invest in your business and in areas that will generate you leads, brand exposure or business. A nice looking sofa in your office is a tax deduction, but it won’t bring you more business.

Don’t tie up cash

It is tempting to pay for goods in full when you order them so you don’t have debt hanging over your head. But when it comes to business, it is actual good practice to order and then pay for your goods at a later date. Most supplier or wholesale accounts will offer 30 day payment options, but try and negotiate a 60 or 90 day payment plan. That way you can keep the money in your account longer but it also gives you time to recoup the payment via your sales if you need to. This is especially good in the retail sector where you will sell your goods for a profit, generating the money to pay your invoice when it is due.

Manage Your Stock

Keep an eye on your stock levels and try not to over estimate your needs. Having money tied up in slow moving stock is a certain cash flow killer. Invest in the popular items and even consider lowering the price of the slow moving products to generate a return of investment.

Set Up a Credit Control System

It’s one thing getting the customers and doing the work, but if you’re not being paid in a timely manner then your cash flow suffers. Set specific payment terms on your invoicing or even consider asking for a deposit or payment up front for a service based business. Some industries even have this as a set practice. Also give as many payment options as you can to make it as easy for people as possible. If you have Paypal, consider setting up a Paypal.me link which makes payment even faster.

If you need help setting up your small business to generate better cash flow and income, please get in touch with us. We’re the small business accounting experts!