Cash flow can be defined as the process through which money flows in your business and out of it through income as well as expenditure. If you wish to keep your business afloat, the simple formula is to ensure that more money comes in than it goes out. Having a positive and healthy cash flow in your business means supplier costs, bills, wages, as well as other expenditures can be timely met. That said, negative cash flow can result in mounting debts and a struggle to keep your business afloat.
COVID-19 has quickly become a part of our lives this year. It is something that nobody could have predicted, and it has taken everyone by surprise. This ongoing crisis has affected businesses significantly insofar as companies are now taking a long and hard look at their staff, business risks and logistics in order to ensure positive cash flow. Although the complete economic impact of the pandemic is yet to be gauged, you can take some steps to minimize the damage and keep your business afloat as much as possible.
Keep Yourself Informed
Remember that it is easy to control the things that you have measured. Hence, you must carry out an updated calculation regarding the working capital that is apt for your business. You must consider a few factors like:
- Have I sent an invoice to all the clients who are due?
- How much money is stuck elsewhere in my business?
- How much stock do I have currently?
- Are there currently any due invoices? If yes, how long have they been overdue, and what are the amounts?
- How much time is taken between paying the suppliers and receiving money from the customers?
- What are the most recent orders that I have placed? Are all of these orders essential, or is there a possibility of cancelling or postponing a few?
Understand Your Financial Position Well
COVID-19 has shown everybody that life as we know it can change in no time. Hence, in such unpredictable times, businesses must adapt and respond quickly. Talking about cash flow, it is important to consider the likely medium-term and short-term financial implications that arise due to the ongoing pandemic. Focus on your liquidity and covenants so that there is immediate cash flow. This will help you plan your next steps well. Also, check all your financial documents to check if you can leverage any flexibility on credit and loans.
Effective Cash Flow Management Tips
Once you know and understand your current position well, you must try to find ways to manage your cash flow effectively going forward. You can try the following tips to do so:
As a business, you have control over when you invoice somebody. This makes a huge difference when it comes to your cash flow. SMEs must invoice their clients immediately after completing the work. Waiting for a week or more does nothing for your bank account as you get the money late. In addition to that, if any problems arise with the payment processing, it takes even more time to sort out the issue, holding up the cash even longer. The fastest and safest way to keep a paper trail as well as receive the payments on time is to send electronic invoices.
This does not mean you need to clean your desk (although that will enhance your productivity significantly) but find ways to make your business more efficient. Check the data analysis tools that you currently have and if they offer real-time reporting across a number of locations.
Check all the overhead monthly expenses. Also, check the overhead that comes up quarterly and annually. Now, ask yourself if you can cut back on rent or switch utility suppliers to save money. Is it possible for you to renegotiate any loan interests or cancel payments for subscriptions that you do not particularly use?
Ensure That Your Customers Can Pay You Easily
Offer contactless payment options to customers because thanks to the ongoing pandemic, not every customer will be comfortable with other methods. Make sure that your customers can pay you easily and quickly. Offer online transfers, card payments and wallet payments but avoid cheques as they cause delays.
Need More Information?
Are you seeking more information about ways by which you can increase the cash flow of your business? Try the ultimate accountancy portal of DNS Accountants! We offer unparalleled accounting services and financial advice. We have experts and qualified professionals in our team with years of experience under their belts. Hence, you can count on them for sound advice and suggestions.
With the ongoing crisis, you can not be quick enough to streamline your finances and increase cash flow for your business.