CASH FLOW DOS AND DONTS
Playing the numbers game
Cash flow is one of the greatest challenges of business ownership, but also an important
measure of your business’s health. As the number-one factor that contributes to small business
failures, it’s worth getting to grips with your cash flow.
DOS:
- Plan, budget and forecast– you can’t manage what you can’t measure. Know your numbers, account for the cyclical nature of business, create the budget and stick to it.
- Ask clients for a purchase forecast to assist your planning.
- Focus on record-keeping, systems and procedures. Get quotes approved, work signed off, invoices out on time, proof of delivery, to avoid delayed payment.
- Look at “just-in-time” strategies — only receive stock when you need it to free up cash and avoid paying for stock sitting on shelves.
- Renegotiate and extend payment terms with suppliers to pay after sales are made.
- Investigate preferential pricing for buying bulk and form buying groups.
- Request discounts and extra discounts for early payments.
- Change your customers’ payment terms — ask for deposits, request cash on delivery or change your terms from 30 days to 14 or even seven. Consider bill progress payments to get cash in during the project.
- Have customers pay online, by credit card or debit order to process payments immediately.
- Offer COD specials on profitable fast moving products, or sell old and obsolete stock at cost.
- Have three months’ worth of fixed expenses in the bank for a rainy day.
DON’T:
- Spend more than you earn — negative cash flow is often a result of expenses being higher than income.
- Bite off more than you can chew, you incur costs, drop balls, quality suffers and you are unable to bill for work you have not completed.
- Sell mark down goods on credit – only offer them on COD.
- Offer credit to customers without a credit check.
- Train your customers to be slow payers - don’t just accept late payment. Initiate recovery procedures and charge interest.
- Discount — do the numbers. It might be cheaper to carry the debt with and overdraft.
- Mix your personal and business expenses and income. Take a salary and keep your personal budget separate.
- Give your accountant/ bookkeeper carte blanche to invoice and make payments without authorisation.
- Extend customer payment terms unless you have to. Soon it becomes the norm.
Greg Mason
He is an experienced business and executive coach, he has headed up one of the first successful ActionCOACH business and executive coaching franchises. He has also hosted the SABC TV show, 'The Business Coach' and achieves business results for clients with a balance between focusing on the numbers, systems and operations.