It's a problem many companies face - sales are strong, profits are up, but there's no cash in the bank to pay the bills. Sometimes it's just a short-term issue, but in many cases the fact that the money coming in can't keep up with the money going out can have a serious impact on business growth. So here are our top tips for a healthy business cash flow.
Perform a cash flow analysis
This is probably the most important first step you can take. Map out when you expect your main expenses to come in (such as bills, tax, extra staff, etc), then look at when you'd usually get a surge of money in (peak sales season, tax return, investment payments, etc). Knowing where you might have lulls in cash flow means you can plan big expenses, such as marketing campaigns or equipment upgrades so they don't need paying at these cash poor times.
Related content: Try our Cash Flow Calculator to see how much you could be saving.
Get payments in quicker
It's a bit of a no-brainer, but unfortunately it's often much easier said the done. There are a few tricks you can try though, such as getting invoices out the same time the goods and services are provided, rather than having a billing schedule. Try shortening your payment terms, and also consider offering a small discount to customers who pay early. On the flip side of this, you could also charge a penalty for late fees - you might not always be able to enforce it, but it might encourage some otherwise tardy customers to pay on time.
Introduce subscription sales
This isn't something that will work for every business, but if you offer goods or a service that is purchased by a customer on a regular basis, consider introducing a subscription, so they're pre-paying for what you're offering. There'll be no more chasing bills, and you won't have to keep canvasing for repeat business throughout the year!
Make your payments later
While you want your customers to make their payments quicker, it can often help your cash flow if you can have longer to make yours. Negotiate with your key suppliers for extended payment timeframes - you might not always need to use 60 days instead of 30, but sometimes having that option available to you could make all the difference.
Avoid buying equipment outright
Rather than using a big chunk of your cash reserves when you need to buy new equipment, consider taking out a loan or leasing. It may feel a bit counter-intuitive as these are both options that can cost more over overall. But paying small, regular payments can make it much easier to maintain a healthy cash flow, and could even be more beneficial for your business in the long run. Leasing also makes it much easier to upgrade to the latest technology.
Have a line of credit in place
Last but not least, make sure you have an emergency line of credit in place in case everything else doesn't quite go to plan. It's much easier to have it in advance and ready to go, rather than scrambling around for a loan when there are bills to pay and nothing to pay them with. Just remember you will need to repay it, and unless you have an interest free period and you repay within that, there will also be interest charges, so don't become reliant on it.
Related content: Download our Cash Flow Playbook to learn even more ways to improve your business cash flow.