Strategies to manage cash flow & addressing cash shortages from Birmingham accountants
Cash flow management is a term used to describe the practice of balancing income to expenses. When managed efficiently companies anticipate future expenses and ensure that they appropriately project when they anticipate receiving cash as part of a sales, investment or contract. This can be completed by producing and regularly updating detailed cashflow plans. Despite every best effort this can be a real challenge, cash flow shortages sometimes arise when cash doesn’t arrive as anticipated due to a large customer delaying a payment due to problems further up the supply chain. For many SMEs, cash flow management is a major predicament, especially given the number of expenses faced each day.
Why is cash flow so important?
In business there is the common saying that “Turnover is vanity, profit is sanity, but cash flow is king”. You can have all the customers in the world, but if liquid assets dry up then your business will really struggle to keep up to date with supplier payments for stock or raw materials, employees, rent and other operating expenses.
7 Tips on how to manage cash flow in business
Our chartered accountants Birmingham have a number of tips for business owners and finance directors on how to manage cash flow, in their businesses that will help when it comes to working through difficult cashflow times. The following practices are quite common among businesses of all sizes and sectors and can be useful for Birmingham businesses:
- Monitor cash flow regularly.
With online accounting software now available this makes it simple to generate timely cash flow reports. Our accountants in Birmingham can provide the most appropriate cloud accounting software, giving instant access to financial information from anywhere in the world. Using accounting software it is also possible to forecast peaks and troughs in your cashflow during the financial year. Helping you plan ahead if additional borrowing is required or know when surplus cash is available.
- Cut costs.
Perform an analytical review of your expenditure. Regularly evaluate if they are still relevant to your business. Can you cut back on expenses such as utilities, rent, payroll, subscriptions, services or insurance that you are no longer using?
Do you have equipment you no longer use or inventory that’s becoming obsolete? Consider selling it to generate quick cash. Our team of accountants in Birmingham can help you use your equipment assets to release maximum cash.
- Get a business line of credit before you need one.
Business line of credit of credit help with peaks and troughs in the demands of your business.However, if you are just starting your business, the bank will probably not grant a credit line immediately. If your bank won’t extend your line of credit then contact us to talk about alternative ways of raising finance.
- Lease equipment instead of buying it.
Purchasing items can be expensive. Leasing gives you the alternative option to allow access to the latest items without having to pay large amounts. Furthermore you can expense the lease costs on your business taxes.
- Stay on top of invoicing.
Ensure you have efficient internal control processes implemented to issue invoices upon work completed or products delivered. With every new customer agree credit terms with a contract on the commencement of work and make sure the terms are clear such as payment due date and bank details. If a customer misses their payment date be proactive and have follow up procedures in place to contact them to find out why it is overdue and when it will be paid.
- Ask for deposits or partial payments on large orders or long-term contracts.
Many businesses can improve their cashflow is by asking for deposits (e.g. 25%) upfront before a project starts or splitting a project into stages, and then the remainder of the balance upon completion. Charging this way, the company generates enough cash to finance any materials or resource needed for the project.
- Delay payments to your vendors.
Make the most of your payment terms. Pay as late as you possibly can without risking late fees or harming your relationship with a key supplier. Unless of course there is an incentive for you to pay early. This can be built into any cash flow forecast and communicated to supplier and keeps you in control with the cash at your disposal.
Cash flow planning Birmingham
If you have plans to grow your business in the next 12 months cash flow is an essential consideration. All businesses, not just SMEs above the Audit threshold, should prepare cash flow forecasts for the next 12 months. We have recently completed cashflow advice having produced detailed forecasts for a variety of clients and prospects for internal planning or external funding. If you are based in Birmingham and would like professional advice on how to manage cash flow strategy then please contact me to find out how our Birmingham accountants can help you plan ahead for growth and success.
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