Effectively managing your finances as a business is the key to long-term success. Master the art of operating cash flow, and you’ll always have the money you need to invest, pay employees, and keep suppliers happy. Fail to do so, and you could find yourself having to rely on expensive finance or, worse yet, go out of business altogether.
In this post, we’re going to take a look at some of the tools that you can use to improve your financial position. Take a look at the following strategies:
Get Funding From The Right Sources
Businesses have access to a plethora of different funding types. Unfortunately, not all of them are suitable for the task at hand. Some examples of finance are last-ditch measures to keep your company afloat, while others are mere stop-gaps, designed to allow you to pay suppliers while you wait for the invoices to roll in.
Getting the right funding for your company is essential. Some types of credit are cheap, while others are much more costly. Traditional banks and building societies typically have the lowest rates, while unsecured lenders are the highest.
Monitor Your Financial Position
Even if your business is making a healthy profit, that doesn’t put you in the clear. Making a profit is great – but WHEN you collect money matters too. You could finish the year in the black, but if you don’t have any funds in your accounts right now to make payments, your business is toast.
Smart entrepreneurs rely on accountants to help them plan their cash flow so that they know when they’re getting money and how much. Cash flow forecasts allow you to see, week by week, how much of your money is going out compared to what’s coming in, letting you adjust your cash holdings accordingly. The more you know about your future cash position, the better.
Find Ways To Make Customers Pay You On Time
Most consumer-facing businesses get paid before delivering services. From the perspective of the company rendering those services, this is the best possible setup. There’s no waiting around for payments to be made. You collect the money, and then you use that money to deliver whatever it is that you sell.
Not all businesses work like this, however – particularly in the B2B sector. Instead of getting paid upfront, money comes in weeks or months later, meaning that you have to meet the costs of rendering services yourself.
Naturally, this creates problems. The biggest issue is the fact that you have to wait to receive money from the person buying the services. It makes cash forecasting more difficult, as discussed in the previous section. Companies, therefore, should invest in methods that encourage customers to pay faster, even in sectors where it is traditional to receive payments weeks or months later.
Be clear on the terms of your service from the outset. Set milestones and create a timetable for payment following the completion of each of those. Make sure that invoices are accurate and have a precise “due date.”