Avoiding a Cash Flow Disaster!

Failing to manage your cash flow effectively is one of the main reasons why businesses fail. Many fall into the trap of thinking that because their products are successful and cheap to make, their business is certain to succeed. Of course demand and the ability to make a margin on sales are important to any business. However if the cash required to generate those sales isn’t accessible then the opportunity to profit will either never materialise or quickly evaporate.

So what can a business do to ensure that their cash flow is never the cause of their demise?

Fortunately for many there are a variety of measures that a business can undertake to improve their cash flow.

Step 1. Cut out mistakes.

Managing and processing payments can be a time consuming process that can be prone to manual errors and mistakes. Simple errors such as invoices being issued with incorrect or missing details can set a process back months.

Step 2. Have a cash flow budget.

Keeping track of your revenue and expenses as well as a record that reflects the timing of how and when cash flows into your company. Creating a budget will help let you know if the cash flow that you have is adequate to cover the amount of expenditure that you have ahead.

Step 3. Don’t let your cash be slowed up in accounts!

Automating your process can help to reduce some of the manual errors and duplication associated with order processing giving the user a more user friendly and streamlined processes. Automated reminders can be sent out to suppliers ensuring that no payments are missed.

Step 4. Have a plan in place for shortfall.

If you have cash reserves on hand your company will never have to suffer the pain of a shortfall, which can dramatically influence your bottom line. By setting up a simple warning when the amount of cash falls below a certain level can help businesses avoid the experience of a shortfall.

Step 5. Understand your cash position.

Always have a clear understanding of your income and disbursements on a weekly, monthly and yearly basis. Having these reports can help to reveal patterns in your cash flow and can therefore help you plan for future growth.

Whether it’s for the best or the worst, knowing any change in your projected cash flow early will give you time to adapt and strategise for the future. Effective cash flow management begins with the right policies and procedures for accounts receivable and accounts payable and can increase the success of any business!

To find out more download the guide from Sage which provides a spotlight on cash flow.

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