All businesses, even those with a healthy order book, can suffer from cash flow problems.Cash flow management is a vital part of your business cycle as it helps to keep your business viable and reduces the risk of not being able to complete all the work you’ve taken on, which in other words is called over-trading. To put it simply, cash flow is the money that comes in and goes out of your business. You need to monitor what you owe and chase payments and get the cash in regularly. You also need to monitor what you are spending by using cash flow forecasts, or projections.

What business problem will affect your cash flow?

Typical issues include having a lot of payments becoming overdue at the same time, or you may be finding it difficult to pay your bills or your suppliers. This could also mean that you are not having stocks or you’re struggling to fulfil orders. During business growth, you will find that extra demands are made on your cash. Have you ever thought about what you would do if you suddenly had a really big order. Would you need to take on extra staff, buy new equipment or even move to a larger premises?

Cash Flow Forecasts- How can they help ?

Your cash flow forecast should show your actual income and spending, against what you originally planned to earn and spend. It is essential that you update your figures weekly or monthly as updating your figures will also bring to light any variances and you need to think about the causes. Sometimes, the price rise of essentials like groceries or fuel will cause a near instant slowdown in consumer spending. Other factors that can also affect forecasts could be the introduction of new products by competitors or your receiving an unexpectedly large order. Let’s consider how you can spot potential problems and deal with them before they affect your cash flow.

Monitor your payments

Regularly monitoring your payments will help you spot any changes in customer payment patterns. You could keep a note of the number of days after invoicing that each customer pays you. If a customer has generally paid 30 days after your invoice date, but now pays three or four invoices 50 or 60 days after invoicing, there could be a sign that something has changed. It’s always worth politely reminding them about your payment terms or contacting them to see if a different payment method would suit them – perhaps two or three part payments than one single payment. This would not only reduce your risk as well but also help you with cash flow. You could also think about taking a deposit upfront as part payment which will reduce your risk. Following up of all your receivables is one of the essentials of good cash flow management.

Over-trading during business growth

Business growth brings with it a number of threats that may affect the financial stability and even survival. Over-trading is quite common among small and growing businesses. This happens when a business takes on work that it can’t cope with, either, because of the demand on its working capital or lack or resources to actually do the work. The effects on cash flow can be extremely serious as you need a heavier cash outlay long before the additional income comes in. You may have to pay suppliers, additional staff, get new equipment or bigger premises. If you run out of cash due to this extra spending, your business could fail despite the large order. Stock control methods like ordering ‘just-in-time’ to meet immediate needs will help to reduce the demand on your working capital.

Entrepreneurial Learning

Effective debt management and credit control can really help to minimize the risk of cash flow problems. If you receive payments quickly, you will have more cash to pay your suppliers and staff. You could also look at all areas of business spending to see where you can tighten up and get effective control of your cash flow. Consider all your business outgoings, and think if you can get a better deal from suppliers, utility companies or your land lord. Anything you can do to improve your cash flow will benefit your business.

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