The task of maintaining adequate cash flow in any size business is never an easy one and cash flow (or a lack of it) is one of the main reasons why young businesses fail. Running a business is not always about profit and keeping a healthy cash flow running is imperative to growth and success.
How to improve cash flow in your business is key to ensure staff are paid and overheads and production flows, and with cash flow issues being directly responsible for up to 90% of business failures in the UK, a profitable business can still become unstuck when this particular problem is encountered.
What is cash flow?
Cash flow refers to the net balance of cash moving into and out of a business at a specific point in time and this flow determines the ability of a business to pay its suppliers, employees, lenders and owners on time. But cash flow can be positive or negative. Positive cash flow means a company has more money moving into it than out of it and negative cash flow indicates a company has more money moving out of it than into it.
Why is it so important?
Cash flow helps keep businesses organised. Many companies use cash flow reports to help them with their budgeting process. Cash flow can also represent the total amount of income before the company pays any expenses for goods or services provided by an organisation. Most importantly, without a positive inflow of cash, you literally can’t sustain day-to-day business operations. You need money in the bank to make purchases that keep your business afloat and help you avoid unnecessary debt.
What are some of the solutions?
Invoice factoring
Invoicing factoring is the process of selling your unpaid invoices to a company in exchange for immediate cash. The factoring company takes a small cut of the money you earn, but the payoff is that you aren’t stuck waiting on customers. Put simply, the factor pays you the majority (usually around 85% to 90%) of the invoices worth, and takes charge of chasing (and receiving) payment. When the invoice is eventually paid by your client, the factor releases the remainder of the invoices value, minus a small fee for its services.
Asset finance
Asset finance is a finance option that allows business to grow by acquiring much needed equipment such as plant machinery, vehicles and more. The business will pay an agreed amount over a set period of time, allowing them quicker access to the asset, without having the cost of buying outright. Financing your business through assets can help boost your cash flow and allow you to have even more control over your business expenditure.
Business loans
A business loan is one way to support gaps in your cash flow and keep your business going strong during quiet periods or while you are waiting to be paid for a big contract. An advantage of business loan is that can be a cheaper alternative to other short-term financing options, such as credit cards.
Stay on top of your invoicing
How you send your invoices can have big implications on your cash flow. Ensuring they are on time and mistake free could be a life saver when waiting for payments to come in. Gentle reminders to your clients are also important as is building a healthy relationship. With some companies taking 90+ days to pay, putting the invoice in sooner rather than later helps businesses with cash flow.
CRM Software
CRM stands for Customer Relationship Management. It’s a technology used to manage interactions with customers and potential customers. A CRM system helps organisations build customer relationships and streamline processes so they can increase sales, improve customer service, and increase profitability. As a result, you can optimise your sales process to focus on the most profitable activities, ultimately improving your cash flow
For further advice on how to improve cash flow in your business, please contact us here.