We have all heard the saying cash is king!
The lifeblood of any business is its cash flow and its ability to collect cash and pay bills as well as pay employees. Far too often small businesses are profitable but cash flow hampers their development.
Simply put Cash flow is the movement of money into (incomings) or out of (outgoings) a business. (source Wikipedia)
In accounting, cash flow is the difference in the amount of cash available at the beginning of a period (opening balance) and the amount at the end of that period ( closing balance).
It is called positive if the closing balance is higher than the opening balance, otherwise it is called negative.
Cash flow can be increased by:-
- Selling more
- Selling an asset
- Reducing costs
- Increasing your selling prices
- Collecting your due monies faster
- Paying slower
- Bringing in more equity
- Taking a loan.
(source Business dictionary.com)
Robert Ellis comments:
“The month of January is typically a time for poor cash flow in a business. Customers often use the Christmas shutdown to defer payment of your company’s invoices which has a knock on effect into the first month of the year”
Here are our top tips to keep on top of cash flow:-
- Do set aside an allotted time every week to chase company debts.
- Use a documented system of telephone calls and emails or letters and move it forward on a weekly basis.
- Don’t be frightened to enlist the help of a debt collection agency if you need to. They can send letters or lodge documents at the company’s registered office for a nominal fee of say £50 or £75. This should jolt the customer to pay. But if you do so, keep away from fees based on a percentage of the outstanding debt collected, this can prove expensive. Stick to fixed fees, at least then you know how much they are.
If you feel cash flow is preventing your business from moving forward then come and talk to us to see how we can help.