10 smart cash flow management habits of successful businesses
All successful businesses know that cash is king and work tirelessly to ensure that they always have enough working capital to operate effectively.
Here we look at 10 smart cash flow management habits that many of these businesses adopt to help you better manage your money too.
1. Create realistic cash flow projections
If you’re a regular reader of our blog you’ll know we always talk about the importance of cash flow forecasting to prepare and protect your business from any upcoming shortfalls.
Most of this task involves predicting your upcoming incomings and outgoings rather than relying on actual figures.
This can be a tricky task for some businesses to master but the key to success is being realistic with your numbers.
If you overestimate your cash flow you could find yourself in serious trouble later when you don’t have enough working capital to meet your commitments.
And, if you underestimate your cash flow by too much you could find yourself missing out on opportunities as they arise which are well within your capabilities.
Whilst you can’t predict exactly what will happen, being realistic will give you the best possible chance of success.
2. Analyse all business purchases
Most businesses are good at keeping an eye on their large expenditures, but the small expenses often slip under the radar.
Successful businesses, however, know that this can be a costly mistake.
Whilst a few pounds here and there doesn’t seem like much to worry about it, these small expenses quickly add up and become a large expense.
Therefore, it’s important to analyse every expense, big or small, to ensure that you’re not wasting money on unnecessary items.
3. Regularly update your budget
With so much to consider in business, it can be easy for businesses to create a budget and then leave it untouched.
But, your budget should be a living and breathing document that grows and changes with your business.
So, regularly update your budget with new cash flow projections and realistic spending categories to ensure that your budget actually reflects your business and its evolving needs.
4. Plan for big expenses
This might seem like a no-brainer, but you’ll be surprised how many businesses know they have a big expense coming up and leave it until the last minute to plan how they will accommodate the cost.
By planning ahead you can gradually make savings and minimise the impact the expense will have on your bottom line.
Also, if you require additional finance to make the purchase you’ll have more time to source the best finance facility for your requirements, ensuring that you get the most suitable facility in terms of cost and level of service.
5. Prioritise expenses
All businesses have essential expenses that need to be paid for regularly, such as payroll, bills and taxes, but they also have non-essential costs such as certain supplies and equipment that aren’t necessary for business success. It’s important to identify the two within your business.
Once you have done this you can then prioritise the non-essential expenses in order of importance.
This will ensure the expenses that are most critical to your business success come first and the others can be put aside until you have enough working capital to splurge.
Knowing the difference between what your business can and can’t live without can be the difference between success and failure.
6. Implement an efficient credit control strategy
Late payment can put a significant strain on your working capital, so it’s important to have an efficient and effective credit control strategy in place to limit the damage it will have on your cash flow.
Having a strategy in place that works for your business and its customers ensures that your accounts receivables team adopt a co-ordinated and professional process that improves your chances of being paid on time, every time.
7. Have a contingency plan
If your business suddenly experiences an unexpected late payment or business expense it can be difficult to maintain a healthy cash flow. For this reason, it’s essential to have a contingency plan in place so that you can overcome any unexpected blips.
If your business is lucky enough to have excess profits, it’s good practice to reserve some of this in a savings account so that you can cover unexpected payments or take advantage of new opportunities as they arise when you might otherwise not be able to.
8. Make cash flow a company-wide priority
It’s important to communicate the importance of cash flow management and your strategy for achieving this to your employees.
This ensures that the whole business pulls in the same direction and keeps cash flow at the forefront of their minds.
For example, you could budget by department so that each section of your business has responsibility for their spending.
Also, it could be beneficial to incentivise your employees for meeting budget goals so that they have the necessary motivation to stay on track.
9. Talk to a broker
The finance facility a business has in place can significantly impact cash flow. Whilst many think that having any funding at all is good for business, relying on the wrong facility for your needs can actually be doing more harm than good.
So, it’s important to regularly check that you have the best funding facility in place for your evolving requirements.
A commercial finance broker can help with this process as they will get to know your business and its ambitions and then use their extensive knowledge of the market to highlight the best options for your particular needs.
This isn’t just a one-time event either, a good broker will keep in touch with you to ensure that your facility continues to work well for your business as it grows.
10. One last tip
Ultimately, all businesses are different and will approach their cash flow management in slightly different ways.
But the most important thing to remember is that a healthy cash flow is vital for business success.
So, don’t ignore it. Take the steps now to ensure that your business spending, budgeting and cash flow projections are all in the best shape possible to allow you to achieve your goals.
Do you have any cash flow management tips that you’d like to share? We’d love to hear them. Please share your thoughts in the comments below.