- Working Capital - this is critical because you need to understand how much money your business needs to operate on a weekly and monthly basis. Answer these questions: How much of your cash is tied up in inventory and work in progress? How long is it between paying suppliers and receiving payment from your customers? The answers will give you an idea how much working capital you need to run your business.
- Ensure your business has enough cash to fund 3 months of outgoings as a minimum. Make sure you also have a financial buffer in the form of an overdraft, personal funds or a revolving credit facility.
- Cashflow budgets may sound boring but forward projections could help you survive a down season. In business, forewarned is forearmed. If you can’t accurately predict sales at least prepare a forecast of the expenses for the year so you know how much you need to cover.
- A monthly spreadsheet can help with planning too. If there is a shortfall to cover, advance warning gives you the chance to talk to a lender or your accountant to discuss your options.
- Check your systems to ensure all customers are invoiced promptly. Do you know how much your customers owe you at any time? Or how much you owe suppliers? Are your terms clearly stated on your invoices and your contracts?
- Your ‘cash conversion cycle’ is the time span between you paying for stock and collecting the revenue from your customer. 180 days is quite common in manufacturing or other inventory based businesses. You can ask for a deposit, get your regular customers to pay monthly or cut your inventory levels by organising same or next day delivery from suppliers.
- Always provide plenty of options for your customers to pay you. Ask for direct credits and always quote your bank account details on invoices and order forms, accept eftpos and credit card payments and set up a PayPal account on your website.
- Be prepared to take the hard line if something or someone is not saving you money or boosting your income. Get rid of non-profitable, slow moving products, shed the unproductive team members and fire your worst ten, slow paying customers.
Cash management is just that, managing your cash flow through understanding how your business works. Knowing and having access to working capital and careful planning will minimise the chance of running out of cash.