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10 tips to improve your business cash flow

10 tips to improve your business cash flow

Cash flow – What it means

Many business owners, and in particular those in the SME sector, often ask why is cash flow so important and why do I need to manage it? The simple answer is that the cash flowing into your business is like oil that lubricates a machine – without it or with too little things start to seize up or slow down  - decisions on the direction of a business such as making investments , hiring new people or launching a new marketing campaign cannot be made as they all require cash to pay for them!

So here are 10 tips to improve your cash flow:

  1. Be proactive with your debtors list: Many businesses, and in particular start ups, tend to ignore the controls and good financial management that is needed to ensure a business has cash flow. Quite often a business will let their aged debtors run over 45 and even up to 120 days but feel pressurised to meet creditor demands. Being disciplined to spend one day a month chasing down outstanding debtors can significantly improve cash flow.
  2. Extend credit terms: Other businesses want your business - so negotiate! There is no harm in asking for extended credit terms to improve your cash flow.
  3. Credit checks: Run credit checks on new customers particularly if they are a business. Check their credit score and promptness in settling their debts!
  4. Make paying you easy: Make payments of your invoices easy by providing choice – BACS, PayPal, Worldpay all allow quick and efficient settlement methods.
  5. Offer discounts for early settlement: Your time is precious - do you really want to spend hours or days chasing down debtors when you could offer a discount on their next order if they settle early?
  6. Manage your stock: It doesn’t help your business if you have unsold stock sitting on shelves. Negotiate with your suppliers and forecast accurately to ensure you have stock at the right levels to optimise your cash flow.
  7. Manage your expenses: Always re-negotiate on rentals, insurance and other annual payments including supplier payment policies. It is a competitive market and businesses want to win your business.
  8. Short term financing: Winning a big contract can sometimes mean investing in resources before you are paid. If you do not have a credit line with suppliers then you should arrange short term finance that is structured. Stay liquid!
  9. Factoring: Factoring can come in several forms and there are many companies and banks that can help. This can be for a single invoice to help you over a hump or for a defined period as you establish yourself in the market. Depending on how strong your balance sheet is will determine the cost to your business and whether you will need additional insurance.
  10. Forecasting: Keep an accurate 6 month rolling cash flow forecast so you know when you are near your limits. If you have funding - know your burn rate and make sure you have enough funding to see you through.

If a business fails then there is a high probability it is because of poor cash flow or poor cash flow management; either not having enough funding to begin with or not managing the cash flow on an ongoing basis. By following my tips you should improve your cash flow management and importantly have a sound grasp of what your business needs to grow.

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EFM provides businesses with financial expertise on a flexible, cost-effective, outsourced basis – with no recruitment fees and payroll on-costs to pay. We believe that financial expertise should be available to all businesses, with cost being no barrier as the absence of this can very easily lead to business failure.

To support businesses, our team takes on the role of your business’s finance department or part of it, providing Finance Director Non Executive Director services as well as supporting bookkeeping functions.

Our people share the view that no one business can excel in every aspect of its operations and by focusing on its core function, while bringing in external support to manage other non-core responsibilities, a business can thrive.

We can help at any stage of your business’s growth, whether you are just starting-up and making a business plan, focusing on due diligence for investors, or looking to exit and require support in securing the best possible financial outcome from the deal.

Working with efm means that your fixed payroll costs become flexible. Unnecessary payroll costs such as NI, taxes, health and benefit plans are reduced or eliminated, issues relating to holiday and sickness cover are removed, and the resource paid for is for an expert at the job in hand.

Our value-add financial management solution is delivered by a team of specialist Non-Executive Directors, Finance Directors, Assistant Accountants/Finance Managers and other professionals located across the country. This team consists mainly of experienced accountants and finance experts with extensive commercial industry experience in a range of sectors.