How to manage cash flow
Managing cash flow is a crucial part of running a business, to make sure you have enough cash available for outgoing expenses – even if you’re profitable.
Maintaining these safe cash levels is imperative, because if you run out and you can’t pay your staff or suppliers, you'll run the risk of becoming insolvent.
Many experts will make the point that, fundamentally, cash flow is the most important thing in business. In other words, it's great for a business to be making lots of money in sales, but if outgoings are greater, it's the sign of a business that isn’t functioning at its full potential.
How to manage your cash flow
There are two ways you can improve your cash flow position: reduce your outgoings, or increase the amount of money coming into your business. Sounds simple, doesn't it?
Every business is different, and for every business there's a different solution. A firm suffering from temporary unexpected costs may be suited to taking a short-term business loan, but a seasonal business might do better with invoice finance, so they're prepared if the problem reoccurs.
The point is, there's a number of solutions to a cash flow problem – and the right finance for your business depends on a number of things.
Here are some methods of managing cash flow to consider, especially if you feel your business may be in a precarious position.
- Sell or refinance assets held within your business
- Take a business loan, which can help boost your cash flow levels in a tough trading period
- Business overdrafts – for businesses who may be able to predict occasional drops in levels of working capital
- Chase debtors – this involves taking more action with clients and customers who owe you money
- Get invoice finance, to receive invoice payments up front before your customers have paid
- Set up new credit facilities – there might be lenders out there who could offer you better terms