Improving your business cash flow basics

The saying 'Cash is king' usually refers to snaring a bargain, but for the owner or manager of a small to medium size business, it's also true that 'business cash flow is king'.

Without money flowing smoothly into a business, and without good systems to manage the payment of accounts and staff, bad cash flow can be a killer.

So what are the keys to healthy cash flow operations?

Cash flow basics

Put simply, business cash flow is your cash receipts minus payments over a certain period. The balance of that calculation at any given time is your cash flow position and can be calculated for a business as a whole, or for a single project or product.

There are different parts of your business that affect cash flow operations: accounts payable and receivable, stock on hand, and the terms of your credit arrangements with suppliers and customers.

If you're looking for greater efficiency, or for the places cash flow might be stalling, these are good places to start.

Monitoring cash flow 

You can never have too much information on your business's financial situation. Cash flow statements and budgets help complete that picture for you.

• Cash flow statements detail the cash flow of your business for the last accounting period. Compiled periodically, often monthly, they help project future movements of cash into and out of your business.

• Cash flow budgets project your cash flow for the next accounting period and help identify future periods of deficit or excess so you can plan for them. They also give you something to measure actual expenses against.

Protecting business cash flow

Given the importance of cash flow operations to your business, how do you protect it, especially in times of economic volatility?

• Be proactive in chasing up bills. This doesn't mean harassing clients, but a polite reminder can avoid costly delays. Consider discounts to encourage early payment.

• Send invoices out as soon as possible. Delays at your end will only compound delays at the other end.

• Maintain a cash buffer to protect your business from non-payments, bad debts or 'lost' invoices.

• Ask for upfront payment from debtors who are slow to pay. Selling online demands upfront payment.

• Examine your expenses to determine what your business can do without or do more cheaply. Fewer outgoings make more out of each dollar flowing into your business.

• Review you debt payment schedule if cash becomes tight. Switch to minimum payments for a period or consider refinancing to free up your cash resources.

• Have a sale - customers love a bargain and sales are an effective way of turning over stock and motivating cash flow.

Keep the cash flowing 

Ask an accountant today how to keep your business cash flow under control. With the right advice, you can protect your business from costly cash flow interruptions and stay on that steady path to growth.