How to control cash flow and your finances
Feb 01, 2025
Any business executive knows that how to control cash flow and finances is one of the most critical business activities of any business, whatever size and structure. Over 90% of small businesses do not succeed in their 2nd year of trading and lack of cash and cash flow management are often cited as the main causes. Here are some key tips for those entrepreneurs out there.
1) Analyze and forecast correctly your cash flow
All too often, cash flow forecasts are quickly produced or incomplete leaving out hidden or unexpected costs. Spending time creating a realistic and robust cash flow forecast will bring its rewards and is an important discipline of financial planning.
Ensuring that you have an adequate level of funding to pay staff and suppliers regularly will keep your business solvent and creating a cash flow management plan will also help you to spot and plan for potential cash shortfalls. Always expect the unexpected, don’t be too optimistic about revenue and expect there to be differences in your forecast and reality.
2) Reduce your overheads
One usual method to cut costs is by looking at ways to reduce your overheads. There are numerous ways to achieve this including reducing staff overtime, decreasing travel costs, reviewing annual policies and negotiating premiums, reducing stock levels where possible, renting rather than buying equipment, etc.
Keeping tight control of your stock, being more efficient and scientific in ordering at the right times and not buying more than needed are also key activities that can help you reduce your overheads.
3) Revisit prices to increase revenue
Do not forget to review your prices annually or as commercially realistic bearing in mind you wish to retain happy customers. Your cost of goods may be increasing, markets are changing so occasionally increasing your prices would generally be accepted and is not something that should be avoided.
Analyze your competitors’ offerings to check that your prices are competitive and providing it does not affect sales, increasing prices will you to increase profit and eventually boost cash flow.
4) Introduce incentives for early payments and enforce late payment penalties
Credit control and ensuring payments due for money owed can often be frustrating but not managing these activities promptly can be potentially game-changing for many businesses. Being owed money and receiving it are very different aspects and are very often confused by new business owners. Create a system whereby you stay on top of revenue due and expedite their payments if and when overdue. Some companies enforce interest charges on late payments but you need to decide how and if you would be happy to enforce this when trying to build relationships with your customers.
Encouraging early payments by offering incentives, such as discounts or reduced charges are becoming more popular and a great way to thank your customers. Whilst these affect your bottom line, they can be excellent methods to help manage a steady cash flow stream.
5) Invest in technology
Your time as a business owner or executive is at a premium and has an enormous value to your business. Laboring away on a succession of spreadsheets to manage your accounts is not the best to use of your time so your most effective option is to utilize technology to control, manage and report on your business finances.
Modern accounting software systems often integrate with your bank account and they will provide you with essential information at the touch of a button. Seeing who owes you money, automatic invoices, payment reminder emails are just a few of the labour-intensive activities that a computer can do in minutes once set up correctly. Investing in suitable technology will allow you the time to focus your attention on other equally important business activities.
