As a small business you cannot only focus on increasing profit. Sure, sales are important and you must ultimately look to increasing your revenue in order to be successful. But, particularly when you are starting up, another factor is equally as important: cashflow. While profits may be interesting and exciting, cashflow is seen as dull and uninspiring. But without a healthy cashflow, you will soon get into big trouble. Here are four steps for improving your cash flow – so you can start focusing on your profits.
- Start with an Accurate and Efficient Forecast
It is particularly important for start-ups and companies that are growing fast to perform an accurate forecast of where the money is coming from, and where it will need to go in the future (both short term and long term). You may believe that increased sales will automatically increase your profits but you may need to hire more staff, buy more inventory, and move to a bigger office – all of which will cost more money. When will the money from sales come in, compared to when you need to pay for the rent or the wage bill? Calculate when money comes in and when it needs to go out.
- Take a Look at Your Terms
Next, make sure you are not getting yourself into trouble because you have an imbalance in your customer terms and your supplier terms, says Ultimate Finance. Look at the customer terms you are offering and see if they are actually working for you, and not just for the customer. And it could be that your supplier terms are actually unfavourable, leading to a big gap and cashflow problems.
- Set Up a Good Collection Procedure
It is important to stay on top of collections so that you get the money in as efficiently as possible. Look at the overall process and see if there are any issues you need to iron out in order to get money in faster. For example, look at your levels of activity around collections. Are you guilty of ignoring unpaid invoices for too long? How is your dispute resolution policy working? Do you have enough contact with customers?
- Check Your Inventory
If you have a stash of products you love, but which only sell, at best, at certain times of the year, it will harm your cashflow. Look objectively at your inventory and get rid of the items that sit too long on the shelves. It is important to check that you are meeting the needs of your customers as well as selling products at the right time. It’s no good having a shop full of items you love, but only sell sporadically. Make sure you are running your business with an eye on cashflow as well as your brand and your business aims.