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Act Now To Improve Your Cash Flow

After determining the current financial position of your business and preparing a cash flow forecast, you can take actions to improve your cash flows.

Improving cash flow, whether it be by getting more cash into the business or reducing cash leaving the business, or both, is fundamental to business survival. It should also put your business in a good position to take advantage of the recovery.

STOCK MANAGEMENT (PURCHASE STOCK / SUPPLIER PAYMENTS)

By effectively managing your stock, you can ensure that your business has the right products in the right quantity and avoid products being sold out or funds being tied up in excess stock. The following tips can be implemented to improve your business’s stock management:

  • Reduce stock orders you assume will be in low demand during the crisis.
  • Increase stock orders you think will be in high demand during the crisis.
  • Implement sound physical controls to minimise perished stock or the risk of theft.
  • Implement a buying policy that covers:
    o Policy on receiving discounts for early repayment;
    o Identification of core stock and the required levels of stock; and
    o Authorised suppliers, ensuring there is not an over-reliance on any one supplier
  • For businesses that hold large quantities of stock, consider using specialised stock management recording software.

DEBTOR MANAGEMENT

Debtor management is central to the effective cash flow of your business. Without an effective debtor control system, you leave your finances vulnerable. The following tips can be implemented to improve your business’s debtor management:

  • Have a credit control policy that includes credit checks for all customers prior to offering credit.
  • Set credit limits for each customer and stick to them.
  • Have strict policy on payments terms.
  • Send invoices to customers as soon as work is completed, not at the end of the week or month.
  • Run regular aged debtors reports identifying slow paying customers and make contact early to discuss issues.
  • If your debtors are experiencing cash flow difficulties themselves, negotiate periodic payments and make sure they stick to their side of the deal.

CREDITOR MANAGEMENT

Creditor management, combined with debtor management, is vital for the working capital cycle. In addition, it is crucial in order to have a good overview of the liquidity of the company. The following tips can be implemented to improve your business’s creditor management:

  • Seek payment extensions from suppliers, even if only temporary to your credit terms.
  • Shop around for suppliers; consider quality, price, and payment terms.
  • Decide which suppliers are critical to your operation.
  • Check your supply contracts to determine under what circumstances you can cancel orders if necessary, or at least delay delivery.
  • Negotiate instalment payment plans.

ASSET MANAGEMENTAsset management

Many businesses accumulate assets they no longer require. Asset management can increase cash in the business and save on costs, such as insurance and storage. The following tips can be implemented to increase cash flow through asset management:

  • Sell or lease unnecessary assets.

RE-EVALUATE EXPENSES

Managing cash flow is not just about getting more cash to come into your business. It is also important to reduce the cash going out of your business as much as possible. The following tips can be implemented to decrease your business’s expenditure:

  • Cut spending you believe unnecessary.
  • Renegotiate supply arrangements to reduce the price you pay
  • Seek cost effective alternative products.
  • Focus on cutting time, not just costs. Speeding up processes will save money.
  • Delay unnecessary capital expenditure.
  • Look to reduce staff costs by reviewing staffing arrangements.
  • Renegotiate leases to get lower rent and better terms from your landlord.
  • Reduce your drawings from the business.

GOVERNMENT ASSISTANCE

Take advantage of any cash payments and other assistance governments and financial institutions are offering. You may want to seek professional advice on how best to capitalise on these initiatives, based on your business’s needs.

FINANCING

Another option to increase cash flow is to seek finance to fill cash shortfalls. The following are ways financing could help improve your business’s cash flow:

  • Speak to your lender about introducing or increasing your overdraft facility. Demonstrate that you are on top of your business and understand your cash flow.
  • Determine your own personal cash position to see if you can inject cash into your business.
  • Seek out other investors to see if they can inject cash into the business.

CHANGE YOUR BUSINESS MODEL

Changing your business model can be a tough decision to make, but it is crucial for some business owners who are in it for the long run. The following are options your business could implement to change its business model and increase cash flow:

  • If you are not selling online, you could consider doing so, if practical.
  • Increase your investment in selling online.
  • Look at different ways to deliver your product or service to your customers, such as product or service bundles.

IMPROVE FINANCIAL SKILLS OR GET EXPERT ADVICECouple in meeting

Improving your management and financial skills or sourcing advice from a professional can help you improve your cash flow. You can do so by:

  • Participating in an online workshop to improve your business knowledge.
  • Seeking advice from a professional accountant or financial adviser, who can assess your individual situation.

If you would like to discuss this please contact our office.

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