For a small business a healthy cash flow is the make or break of the business. While big companies might have assets that
it can borrow money against, smaller businesses do not have this luxury. They have to manage their cash flow on a daily basis.
This means that the owner of a small business enterprise has to keep a very close eye on its bank account. Not only to see how much is in it but also how much you would have to pay out today, tomorrow, next week and next month. This is your cash flow and cash flow management. If one do not keep an eye on it and manage it, it could easily get out of control.
The first step in managing it is to forecast your cash flow. Identify what need to be spend when, how much and on what. This must be compared to what you expect to receive in cash as a result of business activities and when. Put this information in a spread sheet or a table with columns for
“Envisaged income” and
“Envisaged Expenditure” as well as columns for
“Actual Income” and
“Actual Expenditure”. Fill in the actual figures everyday to check that they are in line with the envisaged needs and receipts. If you are over-spending at any given time or under-receiving income, you would be able to detect it immediately and take remedial steps.
The biggest problem small businesses encounter is that they don’t get paid immediately for goods sold or services rendered. As a result they are constantly in a cash-shortfall situation and need substantial working capital to keep the business going while waiting to be paid.
There are some ways to ensure money due is received more quickly and regular:
Make a clear agreement with clients on how long they will take to pay. Circumstances would differ from one to the other but a golden rule is not to go beyond 30 days for payment .
Make sure clients are invoiced immediately and correctly. Do not wait until you have time to invoice someone for a service rendered now. Make time everyday to finalize that day’s invoices.
Do not rely on the normal mail services to mail invoices. The best is to deliver it by hand and you could then even wait to be paid. If not possible to deliver personally, make use of e-mail, fax or even a cheap courier service. If not delivered by yourself, check whether the invoice has been received. It would only take a phone call to establish it but it would also serve as a reminder to pay the invoice.
Do not be shy to make follow-ups. Call a client at least one week before payment is due to make sure there are no unforeseen problems and that payment would indeed be made on due date. Even offer to fetch the money in person as mailing it by your client could also be a further delay to receive it.
With today’s modern electronic banking aids, make use of it. Let your customers have the business’ banking details to make electronic transfers to the account. This will not only save time but also banking costs.
When a big company or business goes out of business it usually takes down a few small
suppliers down with it. Don’t get caught in this unenviable position. Keep an eye on the late-paying customers even if you have to do credit checks on them. If you suspect someone would not be able to pay any dues, don’t keep supplying goods or services and in so doing hoping that everything will turn out to the better.
One can never say his or hers business would not experience cash flow problems one or the other time. When it happens, there is only one way to deal with it – be upfront and honest. Tell your suppliers as early as possible that you may have problems to pay them in time. Suggest other payment dates that you would be able to meet and even offer to make a partial payment if you could afford it. Most suppliers would be less worried ifthey see even a small portion of the money coming in regularly.
It is difficult for a small business entity not allow credit because the bigger customers are used to receive credit and even discount if paid within agreed time frame. Keep your focus and manage your debtors professionally and do not allow longer payment period than you have to pay your
creditors. You have to pay your creditors with the money you receive from your debtors. The main thing is, manage that cash flow correctly!