Cashflow, at its simplest, is the measure of money coming in to your business and the money going out. Having trouble with your cashflow is a common problem, especially in a new business however it is important to know how to avoid the pitfalls so that you can recognise when you have a serious problem.
When you are a new business, bookkeeping can be forgotten about, especially if your business becomes busier than expected. It can be difficult to make time for your accounts but it is important to find time. Organising your books from the start will give you the upper hand when dealing with cashflow problems or difficult customers.
Do you have bad debt?
Bad debt can cause major cashflow problems, if you are relying on your customers to pay you so that you can then pay suppliers, and your customer doesn’t pay, you are left in a difficult situation. Carrying out a credit check on your clients to decide on the credit terms that you should offer can help with this issue. Clients that have a poor credit history should be made to pay upfront or offered 0 day terms to avoid issue of non-payment.
At Commercial Domestic Investigations, we know how important it is for your business that your clients pay. We work with businesses of all sizes to help grow their businesses by offering a credit reporting service on their clients to help you maintain a positive cashflow.
Synchronise your credit terms
Typically, you will experience 30 or 14-day credit terms. Problems will arise when your client terms do not match your vendor’s terms. Say you offer your clients 30-day terms but your supplier has you on 14-day terms, this leaves you with a time deficit where you have invoices to pay.
If this is happening you have two options, adjust your terms with your clients to match the terms of your suppliers or go to your suppliers and negotiate longer terms.
It should be clear that if your business is making little, or no profit then you will have cashflow problems. Bring in new business to correct the problem and look at reducing unnecessary expenses to improve your profit margins. Switching to a cheaper supplier and looking at your utility expenditure are easy places to start.
For new businesses, it is important to know what is expected of you to maintain a positive cashflow. Forecasting your profits, your expenses and other liabilities can go a long way to helping you understand what is expected of your business to be able to succeed.
Whilst it is always great that your business is growing, it can be problematic for your cashflow if you start to grow too quickly. These problems can be eased by asking your bank got a line of credit or a short-term loan to help with the extra costs incurred when expanding.