How to manage business cash flow

Cash flow management is critical to running successful businesses in Leeds and Rochdale. It involves monitoring, analysing, and optimising the inflow and outflow of cash to ensure your business stays financially healthy. Poor cash flow management is one of the leading causes of business failure. In this blog, we'll explore essential strategies and tips to help you master cash flow management and keep your business on the path to success.

Create a detailed cash flow forecast

To effectively manage your business cash flow, start by creating a detailed cash flow forecast. This involves estimating your future income and expenses. Consider short-term (monthly or quarterly) and long-term (annual) projections. Your forecast should include:

• projected sales revenue;
• fixed costs (rent, salaries, utilities);
• variable costs (materials, supplies, marketing);
• debt repayment schedules;
• tax obligations; and
• seasonal variations.

Having a clear picture of your expected cash flow helps you identify potential cash shortages and surpluses, allowing you to plan accordingly.

Monitor and analyse your cash flow regularly

Monitoring your cash flow is an ongoing process. You should regularly review your actual cash flow against your forecast, preferably weekly or monthly. Look for trends, anomalies, and areas where you can improve. Pay attention to:

• seasonal fluctuations;
• customer payment patterns;
• supplier payment terms; and
• unforeseen expenses.

By analysing your cash flow data, you can make informed decisions to address issues promptly and take advantage of opportunities for improvement.

Optimise accounts receivable

Improving your accounts receivable process, i.e., money owed to your business, can significantly enhance cash flow. Ensure you have clear payment terms and policies in place for your customers. Consider implementing these strategies:

• send invoices promptly;
• offer discounts for early payments;
• follow up on overdue payments as soon as they are outstanding;
• screen new customers for creditworthiness; and
• consider using invoice financing or factoring to access funds faster.

Manage accounts payable efficiently

Managing accounts payable is just as important as optimising accounts receivable, i.e., the money your business owes to others. Negotiate favourable payment terms with your suppliers, but always honour your commitments. Efficient accounts payable management can help you extend payment deadlines without damaging relationships.

Build cash reserves

Creating a cash reserve or emergency fund is a prudent strategy. This reserve acts as a safety net during challenging times or unexpected expenses. Aim to save a percentage of your revenue regularly and consider high-yield, low-risk investments for your cash surplus.

Control expenses

Controlling expenses is crucial for healthy cash flow. Regularly review your costs and identify areas where you can cut back without compromising the quality of your products or services. Consider:

• renegotiating contracts with suppliers;
• implementing energy-efficient practices;
• automating routine tasks to reduce labour costs;
• cutting non-essential expenses during lean periods; and
• use technology and accounting software to automate routine tasks.

Invest in accounting software and financial management tools to streamline your cash flow processes. These tools can help you track income and expenses, generate financial reports, and provide insights into your business's financial health. Alternatively, outsource this activity to your accountant who can take on all these tasks for you, leaving you free to focus on running your business.

Seek professional advice

Mastering cash flow management is essential for your business's long-term success and sustainability.

If cash flow management proves challenging, consider consulting with your accountant. At DWilkinson&Company we have helped businesses large and small to manage their cash flow and improve their profitability. We can offer valuable insights and strategies tailored to your specific business needs.

If you want to improve your business's cash flow position but are still trying to figure out what to do, please get in touch. We would be delighted to offer you a free consultation to learn about your business and identify what steps you need to take.