A guide to managing cash flow
Cash flow is crucial in any business. No matter what your turnover or net profits are, if you don’t have enough cash to pay your employees at the end of the month, or money to pay a supplier and deliver your product or service to customers, your business could quickly run into turmoil and face major problems surrounding your cash flow.
Plan, plan and plan more!
Before your business starts trading, you should produce financial forecasts, at least for the next two years. Writing a plan forces you to think through potential problems and opportunities as well as reducing risks.
One challenge could be planning how much cash you need to keep the business alive (burn rate) between the time you start trading and the time your customer pays an invoice into your business bank account.
Understanding the implications of borrowing
Borrowing money in the form of debt is quite normal for many businesses, no matter how big or small. However business owners should always understand the implications of late payments, how interest rates can change over time, and the securities required in order to borrow.
Many will look to using their own cash and borrowing from friends and family initially, which could be a more viable option especially if the business is early stage.
It is advisable to always understand the financial product you are taking out before going ahead. Talk to your bank manager or lender, and there are plenty of online resources to guide you through how they work.
Look ahead and frequently assess your goals
Always refer back to your original financial forecasts – are you keeping with your goals or should you reassess your targets? Ensure that your back up plans is feasible, in case your customer doesn’t pay in a timely manner, or if a big deal falls through.
Don’t bite what you can’t chew
As your business rapidly grows, it can be very easy to take on orders that you can’t fulfil in a timely manner. You may not even have enough cash to pay suppliers and get the process going in the first place.
At Trade Finance Global, our experts specialise in short-term funding to suppliers if you have confirmed orders or customers who will pay on receipt of an order. In all cases, avoid panic borrowing or making fast decisions without thinking about how it may affect your business in the short to distant future. Short-term borrowing can be expensive, so ensure that you have procedures and a buffer to pay the fees and avoid getting into more debt.