Cash flow problems are part and parcel of launching and running a business; you’ll rarely meet a business owner who hasn’t dealt with a cash flow crisis at least once in their entrepreneurial lifetime.
However, that doesn’t mean that the circulation of money in and out of your business bank accounts should be taken lightly.
Some cash flow issues present nothing more than a minor bottleneck that can be easily unblocked with a few simple process tweaks. If left undealt with though, a cash flow problem can evolve into something much bigger that could potentially be fatal for a business – especially a vulnerable start-up or SME.
How to avoid cash flow problems
It goes without saying that prevention is the best way to stop cash flow hiccups damaging your business but we understand that sometimes, that is much easier said than done.
With this in mind, we’ve put together some helpful tips on how to head off any cash flow issues…
Stay on top of payments – Again, this might seem obvious to say but making sure you don’t miss any payment deadlines will ensure you don’t end up with an unmanageable backlog or profile of debts.
Work with a trained accountant – A qualified professional with years of experience will be able to identify and prevent any potential problems much quicker than you will.
Keep a cash flow forecast – Documenting your cash flow forecast for the next 6 or 12 months on a concise spreadsheet will help you stay one step ahead of your incomings and outgoings. This will also buy you a bit of time to resolve any potential issues you see on the horizon and help you assess fixed and variable payments more effectively.
Run a tight ship with your invoices – As well as keeping your own payments in check, you also need to make sure you stay on top of pending bills and invoices. Implement some strict payment terms – 30 days is standard – and stick to them.
Be meticulous with your bookkeeping – Be thorough in the recording of your accounts in order to prevent any important bills, invoices or potential cash flow problems slipping through the net.
How to deal with cash flow problems when they arise
Even if you’ve absorbed all of the above and taken as many measures as you can to avoid crisis, you still might find you run into cash flow problems. If so, here is our quick-fire advice:
Book an appointment with your accountant (or hire an accountant!)
Simplify your bookkeeping process with cloud-based accounting
Cut costs where you can to reduce overheads
Chase overdue bills and invoices
Reassess the ROI of your current spending
Take stock of inventory if applicable
Implement a new pricing structure if applicable
Don’t invest any more money (or time) in loss-making efforts
Now we’ve shared our advice, we want to hear from you! Leave your cash flow management recommendations in the comments below or share them with us on Twitter or Facebook.
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About The Author
We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!