7 Tips for avoiding a cash crisis
Date: 29/07/15 | Author: Sean Toomer
Our top 7 tips on how to manage your cash effectively in your business to avoid a cash flow crisis.
1. Keep a Cash Flow Forecast
A number 1 essential – you’ll never know what’s coming in and going out if you don’t keep a track of it, and it’s certainly not something you can keep in your head. A spreadsheet will do, and we even have a free template here
It needs to be a working document, amended as time goes by. Variations and adjustments can be amended at any time, giving you the time to account for any shortfall or surplus.
2. Understand your cash flow model
Each business has a different model, when customers pay, when suppliers need to pay, when regular payments are needed to made.
Understanding this, or by re-vamping it will keep you on top of managing the cash in business
3. Keep on top of customers who don’t pay
If you have payment terms, these need to be enforced, rigidly. If you have terms of 30 days, any customer still outstanding after 90 are a massive problem – this can affect every area of your business.
You’ll need a system for chasing debts, and what to do when they don’t pay
4. Pay suppliers on time
That’s right, keep your suppliers sweet – many would argue the opposite, to keep hold of your cash as long as possible. If you pay suppliers promptly, and build an excellent relationship, should things take a turn for the worse and you do find yourself in a cash tight spot, you can ask suppliers to return the loyalty and give favorable terms for a short period until your cash flow returns to stable levels. This could mean the difference between folding and getting through a temporary cash flow problem.
5. Look for recurring income, wherever possible
If your product or service allows, look for recurring or even upfront payment wherever possible. Recurring income allows for an excellent cash flow model which can be forecast precisely.
This is particularly applicable to those businesses in the service industry offering a recurring service.
6. Build a cash buffer into your model
Building a cash buffer means keeping your cash balance at a certain level which, in the event an unexpected cost should occur, you have the funds to afford it. This is particularly important for businesses with a changing market.
7. Don’t be afraid to borrow
But be careful. A proper risk analysis should be done before accessing credit. There is nothing wrong with borrowing, only when the business can’t afford it as it hasn’t assessed the risks properly!
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