Most small business owners know that maintaining a healthy cashflow is important to stay afloat, but it’s not always easy to spot the problems before they turn into something bigger.
Failure to spot these issues makes them harder to manage and more dangerous to your business.
That’s the case even if everything appears to be going well. Let’s say you’ve got plenty of work lined up for the foreseeable future, and you’re expecting large payments from your biggest clients.
It sounds like an ideal situation, but if one client doesn’t pay you on time, you might not be able to make your next bill payment, or to pay your suppliers. Late payment charges and interest could easily pile up, pushing you into a negative cashflow spiral.
For this reason, you should be keeping an eye on cashflow at every stage of your business’s growth. It doesn’t have to be a source of worry – with the right monitoring and recording practices, you can keep track of where you are and plan for any problems.
Keep records and use them to forecast
Record-keeping is important for many reasons, and cashflow is one of them. When you have a good idea of the way cash has come in and out of your business in the past, you can use that information to build up a picture of how things might go in the future.
Digital accounting tools make this much easier to monitor. Using software like KashFlow or Sage, you can turn the data into visual reports, allowing you to easily spot any cashflow patterns and work out how to deal with them.
If your business experiences distinct seasonal changes, such as busy periods in summer and dips in winter, you could look at carrying out promotional activities to increase business during traditionally slow periods.
That’s unlikely to completely solve the problem, but it might help to lessen the impact – and, having looked ahead, you’ll be better prepared to manage the peaks and troughs.
Deal with late payments
Almost a quarter of UK businesses say late payments are a threat to their survival.
While there’s not much you can do to guarantee that your clients pay you on time, there are some things you can do to increase your chances.
These include reviewing your payment terms and making sure they’re clear, setting out incentives like discounts for early payment, and invoicing coherently and promptly.
If a client misses the payment deadline, don’t leave it too long to get in touch – contact them early on with a polite reminder, and follow up if they still haven’t made the payment.
Speaking over the phone is often the quickest and easiest way to get through to an unresponsive client. It may be that they’re having trouble paying, or that they’ve missed your emails. Either way, it’s better for both parties to reach a mutual resolution.
The other side of this is to make sure you pay your own suppliers on time. Establishing strong relationships and maintaining a good track record should put you in a good position if you ever struggle to make the payment yourself.
Dealing with a cashflow emergency
Not everything is within your control, and if you do run into cashflow problems, they can be hard to get out of.
It’s generally best to focus on paying off your debts before anything else, to avoid them building with interest.
Reduce your other costs where you can, whether that’s temporarily slowing down your purchases, selling or leasing assets you don’t have an immediate use for, or outsourcing work where your time could be used in a more valuable way.
Be honest with your suppliers, and explain your situation. If you’ve built up a good relationship with them, you may be able to agree on an extended payment deadline, or a payment plan to work around your problem.
You may also need to look into suitable business loans, and think about ways of bringing in more business, as long as you’re equipped to manage it.